The key purpose of this Bill is to ensure that the Crown receives a fair financial return for its natural gas (now commonly referred to as fossil gas). This purpose aligns with Principle 8 of the Government’s Resource Strategy Responsibly Delivering Value – A Minerals and Petroleum Resource Strategy for Aotearoa New Zealand: 2019–2029: the Crown receives a fair financial return for its minerals and petroleum. Wider petroleum legislation, including the Petroleum Act 1937 and the Crown Minerals Act 1991, which superseded it, also specifically grant rights to mine Crown owned minerals in exchange for a fair financial return.

There have been inconsistent approaches to achieving a fair financial return on the Crown’s natural gas resources, with royalty rates depending on when licences or permits were granted for gas discoveries. This is not uncommon and reflects the practice at the time those licences were granted. Licences granted under the Petroleum Act 1937 as a result of a pre-1 January 1986 discovery (pre-1986 licences) are subject to 5–10% royalty rates. This compares with post-1 January 1986 licences or permits granted under the Crown Minerals Act 1991 that are subject to royalty rates of 12.5% or 20%.

The Energy Resources Levy Act 1976 (the Act) imposes a levy on certain energy resources produced in New Zealand. To ensure a fair financial return to the Crown, the Act requires holders of pre-1986 licences to pay the levy on top of the 5–10% royalty rate. The levy is not payable on natural gas produced as a result of a discovery of natural gas made on or after 1 January 1986.

This Bill amends the Act, inserting new section 6(3), which provides that the levy exemption does not apply to natural gas produced on or after the commencement of that subsection from any land to which a licence relates if the licence was granted in relation to a discovery of natural gas that was made before 1 January 1986. The amendment will ensure that new gas production from deposits within pre-1986 licence areas cannot be considered new gas discoveries for the purposes of the levy exemption in the Act.

The Ministry of Business, Innovation, and Employment is required to prepare a disclosure statement to assist with the scrutiny of this Bill. The disclosure statement provides access to information about the policy development of the Bill and identifies any significant or unusual legislative features of the Bill.

A copy of the statement can be found at http://legislation.govt.nz/disclosure.aspx?type=bill&subtype=government&year=2023&no=249

Clause 6 inserts new Schedule 1, which sets out transitional, savings, and related provisions arising from the Bill. Clause 1 of new Schedule 1 provides that in that schedule, commencement date means the date on which the amendment to section 6 of the Act is made by clause 5 of this Bill. Clause 2 of new Schedule 1 provides that the amendment does not apply retrospectively. Clause 3 of new Schedule 1 validates any relevant levy payments on natural gas made before the commencement date.