In Commonwealth waters, Australian offshore petroleum exploration acreage is made available to the petroleum industry under a work program bidding system. Offshore areas are released annually by the Australian Government in two tranches, with closing dates for bids approximately six and twelve months from the date of release. The first closing generally includes mature to sub-mature acreage (relatively well explored) together with other areas requested by stakeholders for early release. Immature to frontier acreage is generally included in the second closing allowing greater lead-times for explorers to develop a pre-bid assessment.

The processes and requirements when applying for and being granted an exploration permit are detailed in three administrative guidelines:

• Applications for exploration areas
• bid assessment criteria and
• permit conditions and administration.

These guidelines are published by the Department of Resources, Energy and Tourism in the Guidance Notes for Applicants which accompany the promotional material associated with the annual release of acreage.

In 1999, the Commonwealth published the Australian Offshore Petroleum Strategy document which provided guidance on the size of release areas/exploration permits. The guide provided a framework for a more focussed approach to offshore petroleum exploration and was applied to the 2000 and subsequent Acreage Release programs. Under the guide, release areas in mature, relatively well explored sedimentary basins are generally restricted to a maximum of eight graticular blocks covering approximately 640 square kilometres, while in the less well explored, frontier basins release areas may comprise up to 80 graticular blocks covering around 6400 square kilometres.

In 1999, the Government implemented an Acreage Re-release Program to allow exploration companies to retain 'good standing' in the event of a default in work program conditions in a permit. These arrangements require a defaulting company to spend the agreed value of any outstanding work commitments on new field-work in the minimum guaranteed period of new permits awarded from the Re-release Program. Although the re-release of any area is at the discretion of the Joint Authority, it is generally intended that any area which does not attract a successful bid in the annual Acreage Release Program will be included in the Re-release Program. The re-released areas are open to all bidders under the work program bidding system with closing dates for bids coinciding with the next closing date under the normal acreage release process.

In early 2004, as part of the 2004/2005 Budget, the Australian Government announced the introduction of a taxation incentive designed to encourage petroleum exploration in Australia's remote offshore areas. The Government will increase the value of deductible pre-appraisal exploration expenditures incurred in designated offshore frontier areas by 50% for the determination of petroleum resource rent tax. The uplift applies to the initial term of the exploration permit awarded over a Designated Frontier Area.

This new incentive to promote exploration of Australia's frontier, offshore areas applies to the annual offshore acreage releases for 2004 through to 2008. Up to 20% of the areas offered each year under the annual Offshore Acreage Release Program can be designated as frontier acreage eligible for the new taxation incentive, although Designated Frontier Areas must be at least 100 kilometres from an existing commercialised oil discovery and will not be adjacent to an area designated in the previous year's Acreage Release Program.

2005 Offshore Acreage Release Program

In late April 2005, 29 offshore areas were offered to the petroleum industry as part of the 2005 Offshore Acreage Release Program (Table 3 [PDF 18KB]). Acreage was made available for bidding in two tranches, with bids closing on 20 October 2005 (15 areas) and 20 April 2006 (14 areas). Five of the areas offered were Designated Frontier Areas and eligible for the uplift toward PRRT projects for pre-appraisal exploration expenditure (S05-2, W05-5, W05-6, W05-23 and W05-24). Of the five Designated Frontier Areas offered, four received bids and one was re-released with a closing date of 9 November 2006.

Bids were received for 10 of the 15 areas offered in the first tranche. The five areas which did receive a bid were offered for a second time as re-released areas with bids closing on 20 April 2006. All five areas re-released from the first tranche received bids and were awarded as exploration permits.

Eleven of the 14 areas offered in the second tranche received bids and all have been awarded as exploration permits. The three areas which did not receive bids were re-released with a closing date for bids of 9 November 2006.

Take-up of Offshore Acreage, Permitting and Company Activity, 1985 to 2005/6

Since 1996 an average of 21 offshore exploration permits have been awarded each year from the annual Offshore Acreage Release and Re-release Programs. Although the annual take-up rate of vacant acreage has averaged around 50% over the same period (Figure 4 [PDF 14KB]), since 2002 take-up rates have steadily increased to an all time high of around 90% in 2005. At the time of writing, bids had not closed for three areas re-released from the second tranche of areas included in the 2005 Acreage Release Program.

Between 1996 and 2003, indicative expenditures proposed in minimum guaranteed work programs for offshore exploration permits awarded from annual Offshore Acreage Release and Re-release Programs show a decline (Figure 5 [PDF 12KB]).

The large indicative expenditures recorded for 1996, however, are strongly influenced by an aggressive bid (42 wells in the six years term of the permit) by Shell Development (Australia) Pty Ltd for exploration permit WA-266-P in the Browse Basin (the 'Cornea' permit) and a bid for exploration permit WA-267-P on the Exmouth Plateau in which six high-cost, exploration wells were drilled in the minimum guaranteed term of the permit (Geryon-1, Orthrus-1, Urania-1, Maenad-1A, Io-1 and Callirhoe-1). In 1997, a high take-up rate of acreage (76%) and the subsequent awarding of a relatively large number of 26 permits (Figure 4 [PDF 14KB]) contributed to the high indicative expenditures proposed in bids for acreage offered in the 1997 Acreage Release Program (Figure 5 [PDF 12KB]).

In 2004 and 2005, indicative expenditures proposed in newly awarded permits increased significantly (Figure 5 [PDF 12KB]), reflecting both the increased number of permits awarded and an improved take-up rate in those years (Figure 4 [PDF 14KB]). The high indicative expenditure (approximately A$900 million) proposed in permits awarded from the 2005 Acreage Release and Re-release Programs has been strongly influenced by an aggressive exploration program (13 exploration wells) proposed by Shell Development (Australia) Pty Ltd in WA-371-P in the Browse Basin.

(Figure 6 [PDF 11KB]) shows the number of small Australian companies which bid successfully (usually as either joint venture participants with other small Australian companies or with larger companies) on areas offered in the annual Offshore Acreage Release and Re-release Programs. With the exception of the years 1998 and 1999, since 1996, small Australian companies have become increasingly important participants in the annual Offshore Acreage Release and Re-release programs (Figures 6 [PDF 11KB]). Although the reason for the low participation rate of small Australian explorers in the 1998 and 1999 acreage release rounds is unclear, the relatively large number of frontier and/or deepwater areas offered in 1998 and 1999 may have limited the number of bids by small companies for offshore areas in these years.

Small explorers continue to play an important role in Australian offshore exploration with almost 60% of companies at October 2006 holding equity in offshore exploration permits, either as operator or joint venture partner, having a market capitalisation of less than $250 million (Figure 7 [PDF 13KB]). In 2005 and 2006, there was a slight increase in the number of both medium and large companies actively exploring the Australian offshore area (Figure 7 [PDF 13KB]). The increase in the number of large companies operating permits, or participating in joint ventures offshore is predominantly due to increased interest by the majors in the discovery and development of large gas accumulations in the more remote areas that have the potential to meet global LNG demand such as the Exmouth Plateau. The increase in the number of medium size companies exploring offshore, however, appears to be a result of acquisition/merger activity and the raising of capital on the Australian stock exchange by the smaller companies, which has increased their overall market capitalisation to the point where it exceeds the $250 million threshold.

As at October 2006, excluding exploration permits located in State waters, a record number of more than 200 offshore exploration permits were in force (Figure 8 [PDF 12KB]). The number of permits shown for 2006 does not include permits which may be awarded from areas re-released from the second tranche of areas from 2005.

With the exception of years 1985 and 1986 when several large, semi-regional permits were in force over significant portions of the offshore area, the total offshore area under permit is at a record level (Figure 9 [PDF 12KB]).