Oil and gas exploration and development in Australia is expected to grow now that the government has removed all restrictions on foreign investment in oil and gas.

The government acted in the face of declining exploration activities, the limited supply of local investment capital and the dwindling known reserves.Kevin Gosper, chairman and chief executive officer of Shell Australia, a unit of Royal Dutch/Shell, said the policy change would greatly encourage international investment in the petroleum industry.

He said the government's action recognized the role that international companies had played in developing Australia's petroleum industry and also their long-term commitment.

He welcomed the move as both sensible and timely, but also called on the government to provide incentives for oil exploration and development.

Prior to the latest rule changes, all oil and gas projects costing more than the equivalent of US$7.1 million had to have at least 50 percent Australian equity participation.

This requirement has been abolished. All projects, regardless of the amount of foreign participation, even 100 percent, are now automatically approved unless they are considered to be prejudicial to Australia's national interest.

Australian Treasurer Paul Keating said the government's resources tax and royalty measures, together with excise arrangements provided a fair system for ensuring that the whole Australian community can share in the returns from our oil and gas wealth.

A specific minimum level of Australian participation is accordingly no longer necessary to ensure adequate returns to Australia in the oil and gas industries, he said.

The government has therefore taken this opportunity to remove a redundant restriction in this area of the economy, he said.

Industry observers here believe offshore exploration and development is the area which will benefit the most from the expanded foreign investment opportunity.

These are the most costly projects. Raising capital to finance them within Australia has always been difficult.

A spokesman for the Australian Petroleum Exploration Association described the government's move as positive.

There is a significant oil supply gap developing, and we need to encourage the industry actively if we are to maintain a reasonable level of self- sufficiency, the spokesman said.

Esso Australia Ltd., a unit of Exxon Corp., and the country's largest oil explorer and producer, recently estimated that Australia's oil self- sufficiency would fall from 100 percent in 1985 to 25 percent by 2000 if no new discoveries were made.

Esso's research indicated that there was a possibility that new discoveries could increase Australia's oil self-sufficiency to 47 percent in 2000.

A spokesman for Australia's BHP Petroleum commented: The government's move is a great step forward.