Well success could transform economy
Future of NZ oil exploration hinges on Great South Basin
OMV’s drilling programme off the Otago coast this summer will probably determine whether there is any further exploration in New Zealand waters, a leading energy analyst says.
OMV and its partners Beach Energy and Mitsui are planning one well about 146 kilometres off the coast southeast of Balclutha.
It will be the country’s southernmost offshore well drilled in 36 years.
John Kidd, head of energy research house Enerlytica, said the well’s success could be transformative for the economy. But an unsuccessful well would probably kill any remaining interest international explorers have in New Zealand.
“We need this programme to be successful for a whole bunch of different reasons,” he told BusinessDesk.
“In terms of future exploration, I think this is really a defining moment — whether or not our frontier basins will continue to attract international interest.”
The Tawhaki prospect lies in the Great South Basin, in a permit OMV and Mitsui have been working since 2007. Last year, OMV told prospective partners the main leads in the permit could hold the equivalent of 3.6 billion barrels of oil and gas.
Former operator Shell committed to drill a well in 2013 but was unable to align its work programme with Anadarko Petroleum, which brought the drillship Noble Bob Douglas to New Zealand and drilled the unsuccessful Caravel-1 well northeast of Dunedin in 2014.
Anadarko, Chevron and Equinor — the former Statoil business — have departed New Zealand waters, not because of the Government’s 2018 ban on new offshore exploration but because they have better prospects to pursue elsewhere.
But in the absence of new block offers, the country’s exploration effort is rapidly dwindling — despite historically being a gas-prone destination in a world seeking more gas to displace coal and oil.
Officials warned in November that exploration acreage had already dropped by more than a quarter since the ban. The 71,000sq km of ocean permitted for exploration would be halved within two years and down to about 18,000sq km by April 2025 as acreage is relinquished to the Crown as part of the usual lifecycle of exploration work programmes.
Gas accounts for about 20 per cent of New Zealand’s primary energy needs and remains important for electricity supplies, particularly during peak winter demand and dry periods when hydro lakes are low.
The Government has assured existing permit holders they are free to continue exploration and will be allowed to develop any discoveries made.
But Kidd said the ban meant there was now no interest among the international explorers needed to help fund that exploration and development.
New Zealand Oil & Gas has approached more than 80 potential partners for its two exploration ventures off the South Island. Director Alastair McGregor told shareholders last month that international players considered New Zealand “closed for business.”
Even OMV, which is spending $500 million-plus to reinvigorate the Maui and Pohokura gas fields, says its exploration under way off Taranaki — and soon in the Great South Basin — could be its last in New Zealand waters without a significant discovery this summer.
The risk to ongoing exploration worries Kidd, given output from both the Pohokura and the Kupe gas fields is declining. New Zealand’s energy assets were “mature” and without exploration and development, industry would be forced to import fuel at higher cost and with higher emissions, he said.
In the past year alone, Genesis Energy and New Zealand Steel imported a million tonnes of coal due to insufficient supplies of Waikato coal and interrupted gas supplies, he said.
“That’s the cost of having domestic fuel constraints.”
The Great South Basin has been explored sporadically during the past 40 years.
Several wells have produced hydrocarbons, but not in volumes considered commercial at the time.
Kidd said the chances of a discovery in frontier waters were low, with odds of success about one in eight.
But he said a “Maui-scale” discovery — which is the scale OMV would be seeking — would be transformative for the region.
Maui, discovered off the Taranaki coast in 1969, took a decade to develop and is still producing.
It dominated the country’s gas supplies until Pohokura came on stream in 2006, underpinned development of the region’s petrochemicals sector and fuelled much of the heavy industry on the North Island.
Shell spent about $1 billion developing Pohokura, while Kupe was commissioned in 2009 at a cost of about $1.3b.
Should Tawhaki deliver a discovery, nothing would happen quickly, Kidd noted. Further appraisal drilling would be required to quantify the resource and the mix of gas and liquids.
A liquids discovery would probably be developed with a floating production station offshore, while a large gas discovery could potentially be developed to export liquefied natural gas from a floating production facility.
Should gas be piped ashore, it would be part of a major industrial development, potentially making urea or methanol.
“OMV will spend a lot of time, as will the government, thinking about how best to develop the resource,” Kidd said.
In 2017, a study conducted for NZOG and Beach showed that successful development of their still-undrilled Barque prospect off the Oamaru coast could boost GDP by $15b and deliver $32b in royalties and taxes over the life of the field.
The model assumed that gas would be brought to shore and used at new methanol and fertiliser plants and would also replace coal at Fonterra’s Clandeboye plant.
The cost to develop the field was estimated at $6b, while total investment across all industries came to $12.9b over 12 years — almost half of which would be spent in New Zealand.
About 68,000 jobs would be created. Though the odds against success at Tawhaki — and of further frontier exploration — remained high, Kidd said the potential benefit for the country from a discovery was vast.
“It would be regionally significant if it comes in as prognosed,” he said.
“In the case of a success, it really does change the conversation entirely.”
We need this programme to be successful for a whole bunch of different reasons. John Kidd, head of energy research house Enerlytica