Monday 21st March 2016
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The government’s latest block offer of oil and gas exploration permits is likely to be over-shadowed by block offers this year in Mexico and the US, says an analyst from energy research consultancy Wood McKenzie.
Kiwi-born and Singapore-based Suzannah Toulmin, the keynote speaker at today’s annual NZ Petroleum Conference in Auckland where a number of protesters are staging an all-day sit-in, said Mexico had a lot of potential and proven discoveries that were de-risked by what’s also on offer on the US side of the border.
There was, however, likely to be some interest in New Zealand’s tender despite global oil prices being at their lowest in ten years and unlikely to hit the levels they were at in 2014 until the end of the decade, she said.
The block offer totals 525,515 square kilometres, covering most of the country’s available acreage. It includes four offshore release areas, Reinga-Northland, Taranaki, Pegasus and East Coast Basins, and Great South-Canterbury Basin, plus one onshore release area in Taranaki.
Plunging oil prices resulted in oil and gas explorers last year taking up the smallest and most conservative range of new petroleum exploration licences since the government began its annual 'block offer' bidding process in 2012 and no new players stepped up.
Toulmin expects most interest in 2016 for the Pegasus and Canterbury basins which offer a lot of potential for frontier exploration while the other areas remain challenging, and she also expects onshore Taranaki to have some willing takers.
She said there are a few things working in New Zealand’s favour – low oil prices have meant service companies have dropped their fees so it's cheaper now to contract a seismic vessel and deep water drilling rigs, the government ranks highly globally in terms of a local fiscal take from exploration companies, and the exploration permits provide a lot of flexibility on the timing of any drilling.
Companies have until Sept. 7 to bid in the 2016 round.
New Zealand has 18 basins as yet unexplored but the track record for frontier exploration in the past 10 years has not been rosy, Toulmin said.
“What’s needed is a really large discovery to transform things – at least 100 million barrels equivalent or even larger at 250 million barrels equivalent depending on which basin it’s located in because getting rigs out here is very expensive,” she said.
Over New Zealand’s 100-year history of exploration, the success rate has been above 50 percent which is well above the global average of around 40 percent but most of it has been in the Taranaki basin which is reaching maturity now.
Over 300 wells have been drilled in Taranaki, more than a third of all wells drilled in the country and over 90 percent of the 2.5 billion barrels equivalent of resources discovered have been in that area which is also responsible for all of the production.
Toulmin says New Zealand needs more small to mid-sized pure play exploration companies.
“Globally these players have proven exploration success on new plays – they’ve discovered more than a third in the last five years which is a significant proportion,” she said. “While New Zealand has a couple of companies in that space, they are not pure play explorers.”
But she admitted exploration budgets are being cut this year and likely to be next year as well until prices start to recover to viable levels.
There are a heavy police presence and tight security at the conference where Greenpeace activists have been removed from blocking entrances to the SkyCity venue, in a show of civil disobedience in opposition to the government’s continued investment in drilling.
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