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NZ O&G Wrap July 2018

By Neil Ritchie

Mostly out of sight but definitely not out of mind is an apt phrase for some of the recent or planned future activities for New Zealand’s oil and gas industry.

In March a leak in the petroleum pipeline from the near-shore Pohokura platform to shore was discovered and immediately shut down. This lack of gas caused the nearby Methanex methanol plants to also shut down.

Suffering a major unscheduled shutdown at Pohokura – the country’s largest gas-condensate field, which usually meets up to 40 per cent of national gas market demand, was a blow for the current owners Shell New Zealand, Austrian-headquartered OMV and Todd Energy with millions of dollars in lost revenue.

The Pohokura closure reportedly cost Methanex about $2 million a day in lost earnings. Methanex also took the opportunity to carry out an extensive six-week maintenance shutdown during the Pohokura repair programme. Methanex produces up to 2.4 million tonnes of methanol annually and exports about 95 per cent of the petrochemical to Asia and some South Pacific countries.

Meanwhile, on a brighter note, multinational services company Petrofac has been awarded a contract by Malaysian multinational Tamarind Resources. The agreement involves the provision of well project management services for Tamarind’s Tui Phase 3 drilling project,

Last year Tamarind acquired a major stake in the Tui, Amokura and Pateke oil pools that make up the Tui Area field and which have been in production since 2007.

In line with the contract scope, Petrofac’s well engineering team will provide detailed well design and planning, subsea support, and health, safety and environmental (HSE) management, and logistics for the Tui Area.

Tamarind’s Phase 3 drilling project is part of a wider strategy to prolong the life of the Tui field beyond 2019.

Petrofac Engineering and Production Services’ well engineering regional director Colin Finnegan has said that Petrofac is “looking forward to supporting Tamarind as it takes the first significant step in this key project”. It is not known when the multimillion contract will start, though it’s likely to be in late 2018.

Earlier this year Tamarind applied to the Environmental Protection Authority (EPA) for the marine consents necessary to drill up to five development wells, which will be sidetracked from up to four existing wells in the Tui mining licence PMP 38158. And a significant portion of these sidetrack development wells will be drilled horizontally, allowing access to adjacent, undrained portions of the oil reservoirs within the Tui mining licence PMP 38158.

Energy and Resources Minister Megan Woods, has officially opened Todd Energy’s new $12 million earthquake-proof operations facility at the company's McKee-Mangahewa production station in north Taranaki. The new Tikorangi building will deliver greater security regarding the delivery of natural gas to help meet New Zealand's energy needs. 

The timber laminated building will also accommodate production station staff in a purpose-built office and link the new control centre to the existing production station.

McKee-Mangahewa is Todd’s largest onshore oil and gas field and contributes significantly to New Zealand's annual natural gas supply.

Meanwhile, Austrian-headquartered OMV has told the Commerce Commission it believes its ability to increase natural gas prices, should it be allowed to buy Shell’s New Zealand assets, will be constrained because these assets are reaching the end of their economic lives.

In its  merger clearance application to the Commerce Commission, OMV argued that even though the acquisition would see it increase its market share, this share would drop off over time as the reserves of these Shell assets decline.

OMV expects Pohokura - New Zealand’s largest gas field - to “come off plateau” in the next year or two and “gradually decline towards its end of field life from then”.

As for the Maui field, its reserves are expected to be depleted by 2023 if no new finds are made (within the Maui mining licence) or existing reserves enhanced.  The “best case” scenario is that Maui continues to operate until its permit expires in 2036.

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. OMV has said it intends assuming the operatorship of both joint ventures once the proposed sale has been completed. Todd Energy is also involved in both of these offshore joint ventures, presently holding 26 percent of Pohokura and 6.25 percent of Maui.

However, once OMV completes its proposed acquisition of the Shell NZ assets, this will see OMV’s stake in Maui increase to 93.75 percent and 74 percent in Pohokura, though this still requires the approval of the Overseas Investment Office and the commission.

Overall, OMV says that if it didn’t agree to buy Shell’s assets, another purchaser which participated in the “competitive tender process and reached a late stage of that process”, would have (agreed to purchase Shell’s assets).

Canadian listed junior TAG Oil has increased its revenue to $C23.7 million, along with a 23 per cent increase in operating netbacks (an important measure for the petroleum industry) $C30.66 per barrel of oil equivalent (boe) for the March 31, 2018, fiscal year.

TAG chief executive Toby Pierce said that during the latest fiscal year the company focused on its waterflood programme, exploration drilling and ensuring it maintained its production assets.

Despite an average Brent Oil price of $US57.52 over the 12 months, TAG still achieved an operating cashflow of $C8.7 million. In fiscal 2019, given the continued strength in Brent Oil pricing, TAG’s main focus remained on low-risk production growth, the waterflood programme and adding to its exploration portfolio in New Zealand and Australia.

TAG also saw a $C15 million increase in net present value (NPV) for its New Zealand assets in the 2018 fiscal year.

ERC Equipoise (ERCE), a qualified reserves evaluator, recently completed an independent reserves assessment on TAG’s producing oil and gas assets within the Cheal mining licence (PMP 38156), the Cheal East exploration licence (PEP 54877) and the Sidewinder mining licence (PMP 53803).

Pierce has added that he expects consistent production over the next 12 months, a steady cash flow and further development work.