Gamblers go for the deep oil

By PAULA OLIVER

Long-time oil explorer Dave Bennett laughs when asked why he refers to the ageing Maui oil and gas field as "matronly."

"I always characterise oil and gas fields as female," he says. "They're so unpredictable."

The head of junior exploration company Indo Pacific Energy, Dr Bennett is one of many hopefuls playing the high-risk game of hunting hydrocarbons in New Zealand.

He typifies the diversity of the operators peppering our shores - his company is Canadian, listed on the American Stock Exchange but run from an office in Wellington.

And yes, it has struck oil in Taranaki.

New Zealand's increasing profile as an oil discovery nation will this year encourage more than 30 international players to chase oil on or around the country's shores.

Twenty-four wells will be drilled this year - an increase on last year's 21 - and a potentially significant deepwater survey will be conducted.

Activity extends far beyond the proven Taranaki region, taking in the East Coast of the North Island, Canterbury and even the West Coast of the South Island.

Sadly, says Ministry of Economic Development executive Clyde Bennett, unless people live in Taranaki they are unlikely even to know that there is a local petroleum industry, least of all one that contributes an estimated $1.5 billion to the gross domestic product each year through oil and gas production.

"We don't realise the potential that's beneath everyone's feet," Mr Bennett says. "The perception out there probably is that we don't really have an industry."

But big recent discoveries prove that we do. Estimates released by the ministry this week show New Zealand's oil and condensate reserves are set to double to about 200 million barrels on the back of finds such as Pohokura, Maari and Rimu.

Production could be worth as much as $10 billion.

Most of our crude oil is exported to such countries as Australia, Indonesia, Japan, Korea and the United States, with the remainder going to supplement the needs of the Marsden Pt refinery.

"It has a big effect on the country economically," notes one industry observer.

"If we didn't have oil we'd have to turn around and bring it all into the country. That would make a big change to the balance of payments."

Industry members are optimistic that a deepwater survey now being conducted off Taranaki will unearth something special. Rumours in the industry suggest that some of the world's biggest oil companies are awaiting the survey's results.

Deepwater drilling is the buzz of the global oil industry. Drilling as deep as 4000m, explorers off the coasts of Angola, Nigeria and Algeria have in the past two years uncovered some of the world's biggest recent finds - with as many as 12 successful drills off Angola.

New Zealand's turn could come if the survey, conducted by Norwegian-based geophysical company TGS-Nopec, gives the right indicators. The Ministry of Economic Development will hold a bidding round for deepwater permits next year.

"It's certainly going to be bloody interesting," New Zealand Oil and Gas exploration manager Eric Matthews says of the survey.

"Deepwater is a good place to look for oil and gas, forgetting the problems of getting the stuff out of the ground once you've started."

New Zealand is an unusual oil prospect. Sitting in an active seismic region, it does not look like the best place in the world to make oil and gas discoveries. Where there's movement, experts say, seals break and things seep out.

"Movement is not good for oil and gas," Dr Matthews says. "It upsets things. That's not to say the Taranaki area is not prospective, but it just creates another level of complexity and difficulty you have to overcome."

Another industry player likens exploration to cooking - you need the right mix of ingredients.

"New Zealand is attractive to others partly because it's politically stable," says Dr Bennett. "You're not at risk of being kidnapped on the side of the road like you are in some other countries."

The ministry has its own theories on why small- and medium-sized oil companies are being attracted to New Zealand in increasing numbers.

Good permitting terms, lifestyle and, of course, political stability are drawcards, it says.

Industry players also point to companies which have crept across the Tasman after being affected by the Australian High Court's Mabo ruling. This said that native titles can exist on crown land and triggered a series of Aboriginal land claims that slowed exploration for several resource hunters.

"At the end of the day, I guess it's good having favourable exploration conditions, but if you can't make discoveries you're not going to make money," says the ministry's Mr Bennett says.

"It's a combination of all those things that is focusing attention on New Zealand."

In other words, the exploration firms won't come unless they think there's a good chance of finding something - which is where the recent Pohokura discovery, Shell-Todd's Maari find and Swift Energy's promising Rimu and Kauri onshore oil and gas fields come into play.

Jointly owned by Royal Dutch Shell, German company Preussag Energie and Todd Energy - the exploration arm of Wellington's wealthy Todd family - Pohokura is seen as part replacement for the ageing Maui gasfield.

Texas-based explorer Swift Energy typifies the growing North American interest in New Zealand's oil opportunities. It began building oil production and gas processing facilities at its Rimu discovery last month. Terry Swift, the young, slick son of the company's founder, continues to deliver an optimistic view of discoveries in New Zealand.

Swift has also increased its local interests by scooping up control of another Taranaki permit from Shell subsidiary Fletcher Challenge Energy.

Says Mr Bennett: "We're very successful at the moment in getting small- to medium-sized North American companies here. That's partly because the reserves in the onshore US are drying up - they've had a lot of production and the fields are depleting.

"These companies, many of which have been in the industry for generations, are looking for new places to explore."

Along with many Australian companies, they are looking to New Zealand, where exploration spending alone put $172 million into Government coffers last year. Royalties claimed from production could extend into billions of dollars.

But while oil opportunities are undoubtedly there, the industry continues to face negative images of the environmental effects of its exploration. Mr Bennett counters the public image of the industry by saying:

"Our view is that if it adds value to the local and national economies, it's a good thing. Why not explore for oil and gas here where we can control any impacts, if there are any adverse impacts?"

Since its buyout of Fletcher Energy, Shell has promised to inject millions of dollars into the economy by developing Pohokura as a productive field. The oil giant describes its local assets as the "jewel in Shell's East Asia resources crown."

Its partners Todd Energy and Preussag Energie are just two of the many companies that have expressed interest in buying some of the assets Shell is being forced to divest as part of Commerce Commission requirements.

But most interest is now centred on the outcome of Taranaki's deepwater survey. Only the largest companies have enough cash to fund deepwater hunts and production, and the survey's results will be backed with an industry marketing campaign. It's hard to mistake the urgency in the voices of explorers when they discuss the deepwater prospect. Oil exploration is, after all, high science combined with a healthy dose of luck. It's a gambler's game.

"People who work in the oil exploration industry find it enthralling," Indo Pacific's Dr Bennett explains.

"It's intellectually stimulating. The deepwater survey is a complete unknown. It's riding the fashion of the times and I wish them luck in getting a couple of big players in."