NZOG keen to produce Tui oil by mid 2006

2.00pm

New Zealand Oil & Gas (NZOG) today said Tui area oil fields in the offshore Taranaki basin are commercially viable to develop and that it hopes to produce oil from mid 2006.

NZOG, along with its joint venture partners, should be able to make a financial commitment to project development of the Tui area fields by June 2005.

The joint venture had already approved a budget for starting initial engineering and design work.

A development concept for the area suggested three or four sub-sea wells tied back to a floating production, storage and load-out facility, NZOG said in a statement to NZX.

Research had proved a probably reserve base range of 20- to 30-million barrels of recoverable oil in the Tui area, NZOG said in a statement to the sharemarket.

Capital costs for sub-sea and sub-surface components of the development were expected to be in the range of US$120 million ($177.64 million) to US$150 million.

If an out-load facility was purchased rather than leased additional investment would be needed, NZOG said.

"Assuming the timely receipt of regulatory approvals, first oil is planned for mid 2006," NZOG said.

"The oil is all of high quality and is expected to flow at very good rates from the excellent quality Kapuni 'F' sand reservoir."

Executive chairman Tony Radford said he hoped the steps currently underway would lead to an offshore oil development.

"While the development concept for the fields is straight forward it needs to be stressed that a final investment decision will not be made until we have completed the engineering studies and secured a suitable production facility," he said in the statement.

"This work is now underway moving towards a target date for project sanction in mid-2005."

NZOG is a 12.5 per cent partner in the joint venture, which has been exploring the Tui area.

Other partners are New Zealand Overseas Petroleum (45 per cent), WM Petroleum (10 per cent), AWE New Zealand (20 per cent), and Mitsui E&P New Zealand (12.5 per cent).

WM Petroleum is a unit of Pan Pacific Petroleum NL.

In August, NZOG said the commercial development of oil discoveries at the Tui, Amokura and Pateke wells -- all in the Tui area -- could cost up to $400 million, of which NZOG's share was up to $50 million.

Funding might have to be raised for that, it said.

Meanwhile, NZOG today described the 2004/05 year as a "watershed" one with all three of its major projects -- Kupe, Pike River coal and Tui oil -- on track for starting development.

At the firm's annual meeting today, Mr Radford said these projects were happening in an environment with high energy prices.

Oil was priced over US$50 a barrel, while hard coking coal was forecast to hit US$90 a tonne next year.

NZOG was due to sign a contract to sell 35 petajoules of Kupe gas to Genesis Energy and secure funding from it for 85 per cent of its development costs, capped at $40 million.

"This will be a foundation contract for the company," Mr Radford said.

"Kupe remains on track for partners to make a formal development decision by mid 2005, and the joint venture led by Origin Energy is working hard to achieve this target," he said.

The Pike River coal project was progressing well, and NZOG was investigating the coal transport chain to its point of export, he said.

"The schedule is to have all necessary infrastructure fully committed to by mid 2005 so that Pike can make a final investment decision," he said.

"Long-term sales contract negotiations are under way to sell forward, the bulk of the mine's production to major steel mills in South East Asia."

It was intended to list Pike River Coal Company (PRCC) separately through a public offer, to which NZOG shareholders would be given a priority right to subscribe.

On listing PRCC would be the only listed coal firm.

- NZPA