New Zealand on Monday offered up to NZ$100 million ($63 million) worth of incentives to encourage the search for gas as the country's main field nears the end of its productive life.
The package would cover temporary adjustments to the petroleum royalty regime as well as funding for new seismic maps and promotion, Finance Minister Michael Cullen and Energy Minister Pete Hodgson said in a joint statement.
The proposals include cutting the royalty paid to the Crown against gross revenue from the sale of gas to one percent from five percent. The royalty paid on oil would remain at five percent.
New Zealand produces around 240 Petajoules (229 billion cubic feet) of gas a year, of which around 40 percent is used to generate electricity.
It is also considering allowing a deduction in relation to the accounting profit royalty (APR) on production from discoveries of exploration and prospecting costs.
APR would be reduced to 15 percent from 20 percent on the first NZ$750 million gross sales of petroleum offshore and the first NZ$250 million onshore on discoveries within the period.
The proposed incentives would apply to production from new discoveries between June 30, 2004 and December 31, 2009.
The government will also review the tax rules applying to non-resident drilling rig operators, aspects of the capital treatment of development expenditure and the application of certain goods and services tax rules to the oil and gas industry.
The government said there is a risk of not enough exploration to increase significantly the prospect of new gas discoveries to meet projected demand.
The Maui field, which used to supply up to 80 percent of New Zealand's gas, had its reserves revised lower early last year and is expected to end its productive life in 2007.
Anglo-Dutch energy giant Royal Dutch/Shell, which owns half of New Zealand's largest gas discovery Pohokura, is the only oil and gas major left in the exploration sector.
It spent NZ$4.2 million in exploration activity last year and has not allocated any funds for 2004.
The fall in natural gas production has prompted the country's two biggest users - Contact Energy and state-owned Genesis Power - to investigate importing liquefied natural gas.