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June 2017 O&G Wrap

By Neil Ritchie

A Royal Dutch Shell announcement regarding the sale of its remaining New Zealand interests – principally its majority stake in the offshore Taranaki Maui gas-condensate field, its controlling stake in the near-shore Pohokura gas-condensate field – plus the operatorship of those fields, is “imminent”, say industry insiders.

“They needed to sort out that deal with long-time partner Todd Energy . . . now they have I expect an announcement by Shell to be imminent,” said one commentator, regarding Todd buying Shell’s 50 percent stake in the onshore Taranaki Kapuni gas field, with Shell now controlling all of operating company Shell Todd Oil Services, which is to be  renamed.

“I hope a Shell sale statement will be made by the end of this month or, perhaps, the next at the latest,” said another industry source.

Shell NZ has been a major partner (48 percent) and operator of the Pohokura field for the past 10-plus years, as well owning a majority stake (83.75 percent) in Maui, with STOS (effectively Shell) operating Maui.  Meanwhile, Todd Energy now has complete ownership and operatorship of Kapuni. Apparently, Todd  was allowed to buy Kapuni, the cheapest of Shell NZ’s oil and gas assets, in exchange for waiving its right of first refusal for the rest of the assets.

It is further understood the likely imminent Shell New Zealand sale, which global investment bank JPMorgan has been working on for more than a year, will also include Shell NZ’s associated tank farm and infrastructure assets, as well as its remaining exploration/prospecting interests that include a major stake (60 percent) in and operatorship of a Great South Basin licence Great and an interest (37.5 percent) in a New Caledonia Basins permit. This will leave Shell clear to exit New Zealand.

The Australian Business Review reports that several private equity firms could be interested in acquiring Shell NZ’s assets, as well as, perhaps, some listed Australian companies and New Zealand interests.

A major focus of any sales will likely be any future decommissioning costs, particularly those associated with the ageing Maui field and its two offshore production platforms, pipeline to shore and onshore production station at Oaonui.

Shell’s remaining producing assets account for 28 percent of this country’s remaining 2P (proved and probable) gas reserves and, during 2016, these fields accounted for 31 percent of the country’s total gas production.

Finally, JPMorgan is promoting the Shell NZ asset sale at a time when demand for gas is starting to outstrip supply.

Listed company New Zealand Oil & Gas has bought back into the offshore Taranaki Kupe gas-condensate field – purchasing a small interest (four percent) from Japan’s Mitsui at a lower price than it sold a larger stake (15 percent) to Genesis Energy just weeks ago.

 NZOG has agreed to buy Mitsui’s sake for $NZ35 million, with an effective date of January 1, less than two months after it agreed to sell its original holding in Kupe to Genesis for $NZ168 million, effective at the same date. The transaction prices indicate Genesis valued Kupe at about $NZ1.1 billion, while NZOG's deal with Mitsui puts an $NZ875 million value on the field.

Genesis was willing to pay a premium because the additional 15 percent interest adds to its original 31 percent stake in the field, thus giving it greater influence over the joint venture partners and helping meet its integrated fuels strategy. It also provided an immediate boost to earnings as Genesis followed this up by agreeing to buy the retail LPG business of Todd Corporation subsidiary Nova Energy for $NZ192 million -- a deal that will lift Genesis’ share of retail LPG from three to 19 percent, making it the second-largest player in this market (by customer numbers) behind Contact Energy.

For its part, NZOG will get on-going income from what it sees as a high-quality field, plus the funds freed up from the earlier sale can be used to buy other assets. "The combined transactions allow us to better diversify our portfolio," NZOG chief executive Andrew Jefferies said recently.

However, the transaction, which adds 2.6 million barrels of oil equivalent (boe) to NZOG's reserves, requires regulatory approvals and agreement from the other joint venture partners, including Aussie operator Origin Energy (50 percent), who have first right of refusal.

Canadian listed junior TAG Oil has announced the successful drilling and flow testing of two zones within the onshore Taranaki Cheal-E8 exploration well that will now be tied-in to TAG’s existing infrastructure as a permanent producer.

Cheal-E8 was drilled on the TAG- operated Cheal East licence PEP 54877, where TAG holds a 70 percent interest and fellow listed Canadian junior East West Petroleum a 30 percent stake.

The primary objective of Cheal-E8 was to test the potential of the shallow Urenui Formation, with the deeper Mount Messenger Formation a secondary objective. Net pay of approximately 17 metres of Urenui sands and four metres of Mt Messenger sands was recorded.

Following the completion of the Urenui zone, Cheal-E8 flowed oil and gas at an average rate of 318 barrels of oil equivalent per day (boepd), with no water production. TAG considers this commercial. TAG estimates the Mt Messenger sands encountered to also be commercial, and this deeper zone will be completed in the future.

The company’s next well, Cheal-D1, is scheduled to spud during July in the same Cheal East permit. The Cheal-D well pad is located near to, and will be used to explore, the northern portion of the nearby Cheal E permit.

Cheal-E 8 is the first exploration well TAG has drilled in almost three years and, with $C15 million raised earlier this year, it is planning at least four more exploration wells planned over the next 12 months.

Meanwhile, a third Canadian listed junior, New Zealand Energy Corp, has announced its first quarter 2017 financial year results, incurring a net loss for the quarter of $C580,844, which was better than the corresponding 2016 quarterly loss of $C959,085.

But the company only achieved an average net daily production of 159 boepd (88 percent oil) , compared to 326 boepd (75% oil) during the first 2016 quarter, which NZEC described as “a period of flush production” from the Copper Moki-2 well.

NZEC operates the onshore Taranaki Copper Moki and Waihapa-Ngaere fields with joint venture partner L& M Energy.

But chairman James Willis said NZEC was still progressing stage 2 of the Waihapa enhanced oil recovery project, with continuous gas-lift having been implemented in two additional wells. “The field is now producing consistently at more than 6000 bpd total fluids. Gas and water handling improvements are currently underway at the Waihapa production station to de-bottleneck for further increases in rates planned for later this year,” he added.

Finally, methanol manufacturer Methanex is part way through a scheduled maintenance shutdown of at least one of its three production plants in Taranaki – two at Motunui and one in the Waitara Valley.

Methanex has so far declined to comment on the details of the shutdown but it is widely known in the industry that additional contractors and personnel, perhaps 100 or more, are involved in addition to the usual Methanex staff and contractors. The shutdown, which is likely to cost several million dollars, is a welcome shot-in-the-arm for the energy support sector.