Oil prices grease way for NZ's first offshore rig

New Zealand's first stand-alone offshore oil well has the green light, with a pledge to spend up to $300 million on the Tui project.

Oil was discovered at the Tui field - off the coast of Taranaki - two years ago by New Zealand Oil and Gas and its partners.

A decision to bring it to market has been made, with soaring world oil prices counter-balancing a three-fold rise in drilling costs.

Tui's owners say that even if world oil prices fell from current levels of around US$55 ($80) a barrel to US$40, the Tui investment would still be recouped after four months of production.

NZOG holds a 12.5 per cent interest in the Tui project.

It says it will fund its $37.8 million share of the investment through a combination of cash and raising new debt.

Recoverable oil reserves for the Tui Area oil fields are estimated by the field operator - part of US oil company Transworld and 45 per cent field owner - to be 26.8 million barrels. It expects to have oil flowing out of the field at a rate of around 50,000 barrels of oil per day, with most of the field depleted in the first few years.

Four wells will be drilled, connected to a "floating production storage and offloading vessel" (FPSO). Oil is pumped to this ship, where it is stored and discharged into visiting tankers.

The FPSO has been leased for five years, with NZOG and other Tui field owners hoping it can then be used for new discoveries in the Tui area.

Oil refineries in the Asia Pacific region, particularly those in Australia, are likely to be the main market for Tui oil.

The first production wells at Tui are expected to be drilled late next year, taking six months to complete. The FPSO is due to arrive in the June 2007 quarter, around the same time the first oil will flow.

Slippery slope

* Over the past five years, New Zealand's oil production has fallen by 49 per cent.

* Average daily production in the year to July this year was just over 20,000 barrels a day.

* Eighty-three per cent of it was exported, with the rest going to the Marsden Point oil refinery.

* Total New Zealand oil production in 2004 was 7.6 million barrels of oil. If the promise of Tui is realised, this will more than double to 18.25 million barrels. In 1997, at the peak of oil production from the Maui oil and gas field, New Zealand produced 21.5 million barrels.

* 159 thousand barrels of oil (with 159 litres of oil in a barrel) is around 1 petajoule (PJ).

* New Zealand's oil consumption in the year ended March 2005 was 250PJ, up5 per cent. The domestic transport sector used 210PJ of oil in that year.

* This equates to around 33.4 million barrels of oil a year.