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NZ O&G Industry Wrap - January 2018

By Neil Ritchie

An announcement by Royal Dutch Shell regarding the sale of most of its New Zealand exploration, production and infrastructure assets remains imminent, despite it calling for final bids by the end of November.

Late last year Canadian listed companies Jadestone Energy and Vermilion Energy, Austrian giant OMV and Aussie listed companies Woodside Energy and Beach Energy were believed to all be interested in Shell’s $NZ1 billion of New Zealand assets, as were Sydney’s private equity firm Questus Energy and Kiwi company Greymouth Petroleum, in conjunction with global investment company KKR.

However, recent media reports now have Questus and Jadestone no longer being interested in Shell’s remaining New Zealand assets. But others –Greymouth Petroleum, in conjunction with KKR, and a partnership of OMV and Vermillion are believed to still be negotiating with Shell. Beach has also reportedly withdrawn from the race after committing to buy the Australasian assets of Lattice Energy from Origin Energy.

Assets for sale include Shell NZ’s controlling (48 percent) stake in the near-shore Pohokura gas field, its majority stake (83.75 percent) in the offshore Maui gas field, all of Shell Taranaki (formerly Shell Todd Oil Services) and interests in an associated tank farm and infrastructure assets.

In addition, industry commentators say those parties still talking with Shell are finding negotiations continue to be complex, given the many assets for sale and that OMV is already a joint venture partner in the Maui and Pohokura fields, holding 10 percent and 20 percent stakes respectively.

Production from these two gas fields, plus production from the offshore Maari-Manaia oil field, which OMV operates with a 69 percent interest, make OMV New Zealand the largest producer of liquid hydrocarbons and the third largest natural gas producer in the country. OMV also holds interests in nine exploration licences, seven as operator and some in conjunction with Shell NZ.

And the Environmental Protection Authority has given the necessary marine and discharge consents regarding two applications by Shell Taranaki for two separate proposed activities within the Maui mining licence PML 381012.

Firstly, Shell Taranaki (or its successor) can now use a jack-up drilling rig at the Māui field for the next 33 years to support potential future drilling campaigns. The jack-up rig can drill sidetracks of existing wells, or even new ones deviated from existing well sites, looking for new pockets of natural gas.

Secondly, the EPA has also authorised Shell Taranaki to carry out the work it needs to do to decide on the best way to permanently abandon three well sites -- Maui-1, 2 and 3 – that were last used between 1969 and 1970.

And well-known and long-time Kiwi oilie, Rob Jager, has been recognised in the New Year Honours list for his work in encouraging workplace health and safety in businesses throughout New Zealand, becoming an Officer of the New Zealand Order of Merit (OMNZ).

New Plymouth-based Jager -- who is chairman of Shell New Zealand, Shell Taranaki general manager and also chairman of the Petroleum Exploration and Production Association of New Zealand (PEPANZ) -- has been instrumental in helping guide significant health and safety initiatives since joining Shell almost 40 years ago.

He says it’s “nice to be recognised and hugely humbling" to receive the New Year Honour, with workplace health and safety being “part and parcel” of the New Zealand oil and gas industry for more than 100 years.

Meanwhile, Monaco-based Ofer Global Group subsidiary OG Oil Gas has declared its partial takeover, at $NZ0.74 per share, of New Zealand Oil & Gas unconditional, having achieved more than enough support to take control of the NZX-listed energy explorer and producer. And the Ofer Global unit has waived any outstanding conditions of its takeover offer.

Onshore, Contact Energy is selling its Ahuroa gas storage facility to Gas Services NZ for $NZ200 million with a long-term agreement to keep using it. Contact has a 15-year agreement with Gas Services for the provision of storage services and can extend this initial term for five years.

Contact chief executive Dennis Barnes has said the deal means Ahuroa will be operated by a dedicated infrastructure company, with the plant more likely to get new customers as it will now be perceived as being more independent. 

Contact opened the Ahuroa plant, primarily to store gas for use at its nearby Stratford power stations – the Taranaki Combined Cycle (TCC) and newer gas peaker plant – complementing its hydro-electric power generation and giving it flexibility to cope with dry periods and peak demand during winter.

Gas Services NZ, owned by Australian-based Colonial First State Managed Infrastructure, provides operational services to First Gas and other customers, and operates one of New Zealand's largest gas networks, with 2500 kilometres of high pressure pipelines and 4800kms of gas distribution pipelines in the North Island.

Contact Energy has also finished its multi-million-dollar refurbishment of the ageing Taranaki Combined Cycle (TCC) power station in Stratford. Work started in early November – with a peak work force of approximately 300 contractors and 40 Contact employees --- and continued through December. The refurbishment is expected to add another 25,000 hours of operating life to the 20-year-old plant.

Also onshore,Canadian listed junior TAG Oil (70 percent stake) and its junior joint venture partner Aussie listed minnow Melbana (formerly MEO, 30 percent) are expecting to start a new exploration well in onshore Taranaki before the end of January.

The Nova-1 drilling rig is expected to spud the Pukatea-1 well from an existing production pad in licence PEP 51135 (the old Puka permit) close to existing infrastructure. The primary objective of Pukatea-1, which will be drilled to a total depth of about 3170 metres, will be the Tikorangi limestone formation. A secondary objective is the shallower Mount Messenger formation, which should be intersected on the way down to the Tikorangi.

Pukatea-1 is adjacent to the formerly prolific Waihapa oil field, which has already produced more than 23 million barrels of oil from the Tikorangi limestone and where individual wells produced up to 5000 barrels of oil per day (bopd).

The updated design for the wellbore path is expected to intersect the Mount Messenger sands approximately 150 metres east of the currently shut-in Puka-2 well that flowed over 700 bopd over a 12-hour period in 2013.

The subdued state of the New Zealand energy industry has meant the Government’s New Zealand Petroleum and Minerals (NZPAM) unit again granting only one new exploration licence – as it did to Todd Energy in late 2016.

NZPAM has granted WestSide New Zealand one 12-year offshore licence PEP 60402 covering an area of 547 square kilometres in the southern Taranaki Basin. WestSide NZ is a subsidiary of Queensland’s WestSide Corporation, which is ultimately owned by parent company Landbridge Group based in China.

Westside NZ has been operating the southern onshore Taranaki Rimu, Kauri and Manutahi (RKM) production assets since late 2016, when it acquired the assets for an unspecified price from Aussie listed company Origin Energy. Since then Westside has stabilised production from the RKM fields and is currently undertaking work to increase oil and gas production.