Shell pullout tipped to dry up oil exploration cash

By CHRIS DANIELS energy writer

Shell Energy's withdrawal from oil and gas exploration in New Zealand will make it harder to find the money to drill new wells, says one industry executive.

David Salisbury, the commercial and legal director of the New Zealand arm of European energy giant OMV, said the country "had a good story from a geological perspective".

"The impact of Shell's decision is that the New Zealand exploration business is capital constrained," he said. "That's been a feature of New Zealand for a number of years. This compounds that problem."

Salisbury said the industry as a whole struggled to find the money needed to explore for oil and gas.

It cost between $20 million and $30 million for each offshore well that was drilled. The wells had about a 10 per cent success rate.

"A decision such as Shell's that New Zealand exploration is less favourable than exploration elsewhere reinforces that it's a global investment market and it just makes it that much more difficult to fund exploration in New Zealand," said Salisbury.

Other companies were now needed to come in and get involved to keep up the level of exploration.

The dominance of the Maui gas field had discouraged investment in exploration in New Zealand, he said.

The industry and New Zealand were in a transition period where it was evident that Maui was in decline. Gas prices would improve and the opportunity to supply gas was now closer than before.

"That should encourage exploration. On the other side there has to be the identification of prospects of sufficient scale that they are going to be sufficiently economic attractive to encourage investors."

Energy Minister Pete Hodgson said it was important for him to know that drilling would be going on this year.

"The key issue for me is, 'Will there be a drilling rig in this country this summer?' My understanding is a most emphatic yes.

"There might be one hole less drilled from Shell this summer, but then again there well be an opportunity to drill another hole somewhere else - even on the East Coast.

"We are still dealing with a satisfactorily thick market, notwithstanding the pullback of the main player in recent times, which has been Shell."