Sydney (Platts)--27Nov2012/429 am EST/929 GMT

A New Zealand parliamentary commissioner has found there is no justification for a ban on hydraulic fracturing of oil and gas wells, and that the practice is safe provided it is properly regulated and managed.

"However I have significant concerns about how fragmented and complicated the regulatory environment for fracking is and about how these rules are being applied," Parliamentary Commissioner for the Environment Jan Wright said Tuesday after releasing an interim report. "If fracking is not done well it can have significant environmental impacts including polluting water and triggering earthquakes," she added.

"I am also concerned that regulation may be too light-handed, particularly if fracking opens the door to a large-scale and widespread oil and gas boom with a lot of different companies involved," Wright said. "These concerns form the basis of the next stage of my investigation into fracking which I hope to conclude before the middle of next year."

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Wright's interim finding that the environmental risks associated with fracking can be managed, provided the best operational practices are implemented and enforced through regulation, were welcomed by Energy and Resources Minister Phil Heatley and Environment Minister Amy Adams.

"We acknowledge the Commissioner's interim view that the evidence she has considered to date suggests a nationwide moratorium on fracking is not justified," Heatley and Adams said in a statement.

"We agree that it is important to have strong and consistent regulation of fracking and to improve regulation and monitoring where necessary," the ministers said. "It is important that New Zealanders are confident in how the practice of fracking is managed."

The government has already implemented a number of measures to allow New Zealand to keep pace with international best practice, Heatley said. Adams added that she had instructed the Ministry for the Environment to consider and produce clear guidelines on the respective roles of central and local government in relation to the control of fracking.

According to Wright, oil and gas producers should choose well sites carefully, and design and construct wells to prevent leaks and spills. In addition, the industry has not yet earned a social licence to operate, the commissioner found.

Although fracking of oil and gas wells is widespread around the world, it has a short history in New Zealand, according to the commissioner's report. The first known fracking took place in 1989 at Petrocorp's Kaimiro-2 gas well in Taranaki, New Zealand's major oil and gas province and home to almost all the 100 fracking procedures that have taken place in the country, mainly aimed at extracting oil and gas from tight sands.

There have been two unsuccessful attempts of fracking coalseam gas wells in Ohai in the South Island's Southland Basin, as well as at Solid Energy's coalseam gas pilot in Waikato in the North Island. Currently Baker Hughes is the only contractor with the equipment and ability to carry out hydraulic fracturing in New Zealand, the report added.

Although some of the many new wells expected to be drilled in Taranaki will rely on the use of fracking, others will not. There are also no current plans for large-scale production of coalseam gas using fracking.

"The greatest potential for a rapid scaling up of fracking lies in the shale rock along the east of the North Island -- spanning the Wairarapa through to East Cape," according to the report.

"The presence of oil and gas on the east coast has long been known -- to Maori long before Europeans arrived. Since 1955, more than 40 conventional wells have been drilled on the east coast but none produced an economic flow of oil and/or gas. However, fracking is poised to change this," the report said.

Two joint ventures currently hold exploration permits that cover most of the North Island east coast from East Cape to Castlepoint. At the time the report was written, one exploration well site was being established near Gisborne and two near Dannevirke.

The Ministry of Business, Innovation and Employment will now prepare a full response to the interim findings, prior to the completion of the commissioner's final report.

--Christine Forster, christine_forster@platts.com --Edited by Haripriya Banerjee, elston_soares@platts.com

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