THE petroleum industry has slammed a federal government plan to extract cash bids for exploration permits, which would add to the cost pressures afflicting Australian oil and gas projects.
Amid speculation that Australia's largest resource project, Chevron's giant $43 billion Gorgon liquefied natural gas development at Barrow Island off Western Australia, faced a cost blowout of up to $20 billion, federal Energy Minister Martin Ferguson surprised the industry on Wednesday by announcing the government would introduce cash bidding for release of offshore petroleum acreage.
''This will apply only to mature areas, or those known to contain petroleum accumulations,'' he said.
Analysts speculated that the policy would apply to already-developed oil and gas fields such as the Carnarvon Basin and Bass Strait.
At present oil and gas companies interested in getting offshore permits submit a work program detailing expected spending on exploration. Generally, the party proposing to spend the most is given the exploration acreage.
A cash bidding system is used to allocate exploration rights in North America but it allows oil and gas companies to ''sit'' on acreage without developing it and it has been considered unsuitable for ''frontier'' areas such as Australia.
In October the Queensland government announced that a new competitive cash bidding process would apply to companies seeking the right to explore on highly prospective coal, petroleum and gas resources tenements in Queensland.
The Australian Petroleum Production and Exploration Association supports the work program system and chief executive David Byers said cash bid payments would ''reduce the overall pool of funds available for companies to undertake exploration, because they divert funds from the drilling of wells to the payment of government access charges.
"The introduction of cash bidding has the potential to impact on Australia's small explorers who may have limited funds for exploration. Many of these companies have been directly responsible for identifying the resource potential of regions and basins that are now producing oil and gas in Australia.''
Mr Ferguson said the government would consult with industry before finalising the cash bidding process.
The move was intended to prod companies to bring production opportunities to the market rather than sit on the resource, and would ''prevent over-exploration in areas where none or little may be required, and in doing so ensure the lease of these areas is equitable, economic and efficient''.
"In these mature areas, if they are prepared to pay real money because they think it's commercial, then logically … they'll be wanting to get a return on that investment," he said.
"We might have a floor price below which, if we don't get what we think is appropriate for the opportunities, you just don't award an outcome."
Separately, Mr Ferguson announced the government would increase rather than cut funding for Geoscience Australia.
Geoscience will now receive an extra $114 million over four years. The funding had been budgeted to fall from $113.8 million in the current fiscal year to $98.8 million in 2013-14 and $88.4 million the following year.
Following media reports that costs at Gorgon could blow out to more than $60 billion, Chevron yesterday reiterated costs and schedule were under review but declined to nominate a figure, stating ''uncertainty and opportunity still exist in some key assumptions - including logistics, productivity and weather''.
Citi energy analyst Mark Greenwood said high Australian labour costs and productivity were putting pressure on Australian LNG projects and he forecast costs at Gorgon would increase from a budgeted $US37 billion to $US48 billion. ''We don't think it will be as high as $US60 billion,'' he said.