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A decision at last - Shell/OMV

By Neil Ritchie

The long awaited announcement by Royal Dutch Shell that it is selling its remaining New Zealand assets -- principally its major stakes in the Maui and Pohokura offshore gas fields -- to global player and Austrian-headquartered OMV has surprised no one in the Kiwi energy industry.

The Anglo-Dutch energy giant said last month that it had reached an agreement to sell Shell New Zealand’s assets to OMV for $US578 million (NZ$794 million).

“OMV has been the favourite to buy the remaining Shell assets for a while, though there was some talk earlier about Greymouth Petroleum, in conjunction with KKR, also being a bidder,” said one industry commentator, referring to New Zealand’s second largest private energy company Greymouth and global investment company KKR.

“It would be good, interesting, to know why they (OMV) were chosen,” he added.

A second commentator said: “Rumours of this sale have been floating around for many months . . . it’s good that OMV is a good, solid company. But one downside is that OMV is already well established in New Zealand, having been here since 1999s. So this proposed sale means there will be no new players entering the New Zealand oil and gas industry.

OMV currently has a 26 percent partnership in Pohokura, and a 10 percent stake in Maui, while Shell holds 83.75 percent of Maui and 48 percent of Pohokura. And OMV has said it intends assuming the operatorship of both joint ventures once the proposed sale has been completed. Todd Energy, which bought out Shell’s 50 percent stake in the onshore Taranaki Kapuni gas field last year, is also involved in both of these offshore joint ventures, presently holding 26 percent of Pohokura and 6.25 percent of Maui.

The proposed sale will see OMV’s stake in Maui increase to 93.75 percent and 74 percent in Pohokura. But this still requires the approval of the Overseas Investment Office (OIO) and the Commerce Commission, includes such entities as Shell Exploration New Zealand (SENZ that is responsible for exploration activities), Shell Taranaki (responsible for operating the Maui and Pohokura fields), Energy Infrastructure (responsible for the Omata and Paritutu tank farms and associated infrastructure) and Energy Petroleum Investments.

However, several other seasoned commentators have pointed out an obvious hurdle OMV still needs to clear to gain full and final approval. And this will possibly mean OMV having to decrease its new very high equity stakes by “farm-outs” -- diluting its positions in both major fields -- and thus satisfying any competition concerns.

Though the Maui field is in its 60th year in production, OMV must think there is still some potential left in the ageing field, including some possible future exploration activity concentrating in or near previously drilled non-commercial prospects such as Ruru. “Absolutely,” said one veteran commentator.

Another said the near-shore Pohokura field will become OMV’s “prized possession”, with more profitable reserves able to be accessed, drilled and developed from onshore compared to those in the offshore Maui field.

It is also believed that OMV is taking on the costs of decommissioning the Maui and Pohokura fields sometime next decade and may be able to extend the economic life of these fields than is currently expected based on current estimates of remaining reserves. As well, there may be implications for the country’s natural gas and liquefied petroleum gas (LPG) industries.

Shell GSB Ltd (SENZ’s stake in and operatorship of Great South Basin exploration licence PEP 50119) is also being sold in a separate transaction, which includes a proposed drilling programme that could cost an estimated US$50 million.

The proposed sale of Shell New Zealand’s assets is part of Royal Dutch Shell’s international US$30 billion divestment programme and marks the end of the multinational company's association in New Zealand after more than 100 years. The Kiwi divestment follows a two-year strategic review of Shell's interests in New Zealand.

And the planned sale is consistent with the Shell Group’s strategy to simplify its upstream portfolio and re-shape the corporation into a world-class investment. As part of the deal, which is expected to be completed by late 2018, all Shell Taranaki and Shell New Zealand staff will become part of OMV New Zealand.

The announcement “is another step towards reshaping and simplifying our company, deepening Shell's financial resilience and competitiveness, in order to become a world-class investment," Shell integrated gas and new energies director Maarten Wetselaar recently said.

And Shell New Zealand country chairman Rob Jager recently said it’s “business as usual” until the deal is done."We have two high priorities over this transition period - to continue to run our assets in a safe and reliable manner, and care for our people.”