Genesis Energy says the KS-9 well off the Taranaki coast has come up short.
Genesis Energy says the KS-9 well off the Taranaki coast has come up short.
Genesis Energy has cut its earnings forecast for 2024/25 after its gas well in the Kupe field, KS-9, came up short.
The company said its “well intervention campaign” at Kupe KS-9 had concluded, with work unable to produce sufficient flow to sustain operation of the well due to the reservoir pressure level and liquid inflows.
Further interventions may be considered in due course, the company said.
“Lower-than-expected production is estimated to result in a $15-20 million reduction in 2024 earnings before interest, tax, depreciation and amortisation and financial instruments (Ebitdaf) versus previous guidance of around $430m,” Genesis said.
Normal full-year financial planning is under way and will include an assessment of updated Kupe production levels and reserves, the company said.
Chief executive Malcolm Johns said: “Gas production across New Zealand continues to decline faster than expected and, as previously stated, less gas means more coal.”
The intervention campaign at KS-9 involved checking whether there was a blockage, ensuring the original drilling had created the correct perforations to allow for gas flow and re-perforating the gas column in an attempt to improve the connection to the gas reservoir.
Subsequently the intervention campaign sought to restart the gas flow but due to the reservoir’s pressure level and liquid inflows, this was not possible, the company said.
Genesis Energy’s “Gen35″ strategy involves investment in solar, grid scale battery storage and wind to help grow the company’s renewable portfolio to around 8300 gigawatt hours.
“This reinforces the importance of Gen35 and Genesis remains focused on its long-term strategy,” Johns said.
Genesis has in the past said gas is expected to continue to play a role through the energy transition in providing both back-up generation for dry periods and support for increased intermittent wind and solar generation.
Without additional gas, emissions would be higher due to a greater need for coal generation, it said.
Malcolm Johns, CEO of Genesis Energy.
In February, Genesis said its $430m Ebitdaf forecast was subject to hydrological conditions, gas availability, “and any material adverse events or unforeseeable circumstances”.
Genesis runs the coal and gas-fired power station at Huntly, along with a handful of hydro projects in the central North Island and the South Island.
By late morning, shares in Genesis had dropped by 6.5c or 2.8 per cent to $2.22.
NZ Oil and Gas, which has a 4 per cent interest in Kupe, said the result was “sub-par”.
Chief executive Andrew Jefferies said NZOG will be evaluating the results of this campaign along with other potential options over the coming months, with a view to improving productivity from this well.
“I see the KS-9 well as a key data point which will help us to understand further opportunities in the Kupe field, a field that has outperformed the expectations of its original business case in 2006,” he said.
”It will continue to provide much-needed gas to New Zealand, providing cheap clean back-up power to the burgeoning fleet of less reliable renewables,” he said.
The other partners in the field are Beach Energy, with 50 per cent, and Genesis Energy with 46 per cent.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
