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Greymouth seeks early contact on partial Kowhai surrender

Tuesday 4th June 2019

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Greymouth Petroleum says it will meet with officials soon to arrange the surrender of part of its Kowhai petroleum mining permit in Taranaki.

The High Court last week endorsed a condition of the original 2009 permit that required Greymouth to relinquish non-producing parts of the 68 square-kilometre licence after 48 months, ultimately extended to 90 months. The condition was not in breach of the Crown Minerals Act, and nor were the areas to be surrendered restricted only to parts of the permit that had been drilled, Justice Robert Dobson ruled.

Greymouth, the second-largest New Zealand-based gas producer after Todd Corporation, had previously offered to surrender a strip down the western side of the permit equivalent to almost 39 percent of its area but had resisted calls from New Zealand Petroleum & Minerals to surrender a broader area.

Executive chairman Mark Dunphy said the court’s decision, which also prevents NZP&M revoking the permit, had provided important clarity on how the dispute can be resolved.

“We’ll be in touch with the regulator and we would hope that the consensus that we would expect now exists, should exist and that we will achieve a timely resolution,” he told BusinessDesk.

“The eastern part of the Kowhai permit is very important to us.”

The Kowhai permit – PMP 51378 - runs from the coast, taking in Waitara, Tikorangi and Huirangi to the south. The northern part of the permit adjoins Greymouth’s Turangi permit to the east, while the south-eastern part adjoins Todd’s Mangahewa acreage.

Kowhai produced about 5.5 petajoules of gas in 2018, according to government data. It and Turangi field delivered 17 PJ of gas that year, about 10 percent of the national supply.

Greymouth had gone to the High Court seeking a judicial review to prevent NZP&M requiring it to surrender parts of the permit the regulator considered non-producing. It also disputed NZP&M’s claim that the permit could be revoked after Greymouth had not submitted a work programme acceptable to it at least three months ahead of the due date for the new plan.

Dunphy said Greymouth’s operating practice wasn’t to “take on city hall”, but the company felt it had to act in the face of what it considered an “uncompromising” and inconsistent approach by the regulator.

The company had drilled six wells at Kowhai and had produced more than the reserves estimated at the time the permit was granted. In contrast, he said the partners at the OMV-operated Great South Basin permit off the Dunedin coast had just been granted a further permit extension, having never drilled a single well, despite that being a required within the first five years of that permit being granted in 2007.

While a surrender obligation is usual with exploration permits, it is unusual once a mining permit has been granted under the Crown Minerals Act.

The court heard a similar obligation was imposed when the offshore Tui mining permit was granted in 2005, but in that case the areas to be tested and surrendered if commercial hydrocarbons weren’t discovered was clear.

In the Kowhai case, the court heard Greymouth had been keen in 2009 to get commercial production underway, but the regulator was unwilling to grant the relatively large mining permit, when the Kowhai field in the south was limited to such a small part of it. Greymouth volunteered the surrender condition to expedite the decision.

Justice Dobson found the mining permit would not have been granted at the scale it was, unless the regulator was able to revisit that justification, once the results of further drilling could be taken into account.

“These circumstances demonstrate that the flexibility for the decision-maker to grant a PMP over a larger area than is initially justified, subject to subsequent revision of the justification for doing so, is a flexibility that is desirable in appropriate circumstances to advance the purposes of the statute.  I am not persuaded that imposing a requirement for subsequent reduction in the area of a PMP is contrary to, or inconsistent with, the purposes of the CMA.” 

The hearing in March heard that, early in the life of the permit, NZP&M became aware that Greymouth’s board was reluctant to confirm the area to be surrendered, in-part due to the terms of the firm’s banking covenants.

Greymouth also appeared to believe the north-eastern part of the field – adjoining its Turangi permit – also held producible reserves. While it had offered to surrender western parts of the permit, it resisted NZP&M calls to surrender a broader area.

Justice Dobson noted the evidence of reservoir engineer Mike Adams that “surrendering the area demanded by NZP&M would mean surrendering the almost certainly gas bearing western flank of what is the Turangi field to the east.”

Adams, now chief executive of NZ Energy Corp, was a consultant to NZP&M when the permit was granted.

(BusinessDesk)

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