Kupe delay irks NZOG

Kupe gas is now due to start flowing late this year and full production from early next year. Photo / Supplied

New Zealand Oil & Gas is frustrated with delays to commissioning of the Kupe field which it says will underpin revenue for the next 15 years.

The exploration company said six-month delays were caused by testing work taking longer than expected although they were not expected to have a material impact on results.

Kupe gas is now due to start flowing late this year and full production starts from early next year.

"Frustratingly, the final pre-commissioning testing and certification process at the Kupe production station is taking longer than anticipated," the company said. NZOG has a 15 per cent interest in the field.

The company yesterday released results for the three months to June 30, which showed spending of $26 million outstripped revenue of around $17.2 million. Just on $13.9 million of revenue was from the Tui oilfield off Taranaki - just a 10th of the $138.7 million revenue for the full year to June. The company has a 12.5 per cent interest in the Tui field.

Production during the quarter was disrupted by bad weather on 17 days, but overall production for the year was slightly ahead of forecasts.

In the year to June 2009, Tui produced 9.12 million barrels, with just over 1.5 million barrels in the three months to June.

At June 30, Tui had produced a total of 23.3 million barrels and had remaining proved and probable reserves of 26.8 million barrels.

The company announced this month it had spent around $10 million buying a 10 per cent interest in the Hoki prospect, approximately 150km northwest of New Plymouth.

NZOG chief executive David Salisbury said a "success case" would see oil flows similar or better than Tui, but there would be hundreds of millions of dollars required to get to that point, if the oil was there. Drilling is expected to start in September or October.

Following that, drilling of two exploration wells in the Tui field would get under way, with just under two months of drilling rig time secured by the joint venture partners.

Salisbury said the company was concentrating on new prospects close to home - including assessing whether to bid for offshore Northland and East Cape rights - and staying close to its core business of looking for oil and gas rather than heavy oils or gas hydrates.

The company had passed on several prospects "that don't make sense", including an opportunity in Vietnam.

During the past 18 months both the international oil price and the exchange rate had been through "huge" fluctuations, resulting in returns on shipments of Tui oil fluctuating between $65 and $190 a barrel.

The company yesterday also announced a dividend reinvestment plan. Its full-year results will be announced on August 26.

NZOG shares closed down 2c to $1.60 yesterday.