Drilling for gas a risky business
Oil and gas is a high-risk, highstakes business – but the potential pay-off can be enormous. New Zealand Oil & Gas (NZOG) released a report on Monday which showed the Barque prospect, a gas field 60 kilometres off the Oamaru coast, had the potential to add $7.1 billion to the New Zealand economy each year. But to turn that potential into reality requires a lot of investment, with no guarantee of success.
John Kidd, director of sector and equity research at Woodward Partners, said there was still significant work to do to get to the point where exploration could begin to determine whether gas was present.
NZOG would first have to be successful in marketing the prospect to other parties, who would back the venture, he said. ‘‘The clock is ticking down to secure parties prepared to take equity in the prospect, particularly in the very expensive exercise of drilling.’’
NZOG has interests in two exploration permits: Clipper, where Barque is situated, a 50/50 joint venture with Beach Energy, and Toroa, a 30/70 joint venture with Woodside Energy).
There would need to be more parties involved to spread the risk, he said. They would then have to commit to a wider work programme to begin drilling by April next year. ‘‘They’re not able to do that at this point, they don’t have the commercial arrangements in place to support that.’’
He said NZOG had suggested there was genuine interest in the venture but converting that to invested money would be hard.
Once those factors were aligned, the drilling process itself would be expensive, would probably take more than a decade and would have only about a 20 per cent chance of success.
‘‘There’s a four out of five chance of zero result,’’ he said. ‘‘That’s the game. Oil and gas is a business of risk. The risk piece of this is well understood internationally.’’
It was not an unusual risk profile for such an operation, he said.
Kidd said while there was no production off the east coast of either island yet, there was significant interest from the Pegasus Basin up to Canterbury and even further north off the coast of Wairarapa. ‘‘There’s proving to be of substantial interest to some very big names,’’ Kidd said. ‘‘There’s genuine interest in that region.’’
He said, if gas and oil were found, there was likely to be large amounts. That prospect made the venture worth doing, he said.
Every company that was working in the region had its own materiality test to determine whether it was worth doing, he said.
‘‘What is on offer has to be of scale to justify looking for it. Chevron, Anadarko, Statoil... their materiality tests are very high. The size of the prize would be large if they were succesful.’’
"There's a four out of five chance of zero result." John Kidd, Woodward Partners