Oil reserves cut by 10m barrels

Production at the Tui oil field is expected to finish by about 2020. Shares in New Zealand Oil & Gas fell 11c yesterday. Photo / APN

Expected reserves from Taranaki's offshore Tui oil field have been cut by as much as a fifth, reducing the venture's total value by up to $1.43 billion, based on current Brent prices.

AWE, the field's ASX-listed operator, announced yesterday that gross 2P (proven and probable) reserves were likely to be 40 to 42 million barrels, rather than the 50.5 million previously reported.

New Zealand Oil & Gas chief executive David Salisbury said the Government collected around 20 per cent of the accounting profit on oil extracted from profitable fields, plus corporate tax.

"So the net take is nudging 50 per cent," he said.

Shares in New Zealand Oil & Gas, which holds a 12.5 per cent stake in the Tui joint venture, slumped almost 17 per cent to 69c after the news yesterday, before recovering to close down 11c at 73c.

"It's obviously a significant announcement," said Salisbury. "It's material because it's a reduction in oil reserves."

It was the biggest fall for the stock since the Pike River disaster, when the firm lost around a third of its market value.

NZOG owned an almost 30 per cent stake in the West Coast mine, in which 29 miners died after an explosion last November.

The company said the revised forecast represented a net reduction of oil of 1.1 to 1.3 million barrels.

Shares in Pan Pacific Petroleum, which is also NZX-listed and holds a 10 per cent stake in Tui, fell 1.5c yesterday to close at 16c last night.

AWE holds a 42.5 per cent share in the Tui venture, while Mitsui E&P Australia owns a 35 per cent stake.

NZOG said AWE's evaluation of Tui had identified possible additional volumes of crude not accessed by the field's current wells.

"To recover this oil, additional wells or side tracks of the existing wells will be required," the company said. "Further work is being progressed that may mature these opportunities into a firm project that would add back a portion of the reserves reduction."

NZOG said the revised estimate indicated that production could end in 2019 or 2020.

New Zealand Institute of Economic Research principal economist Shamubeel Eaqub said the reduction in Tui's expected reserves was "not hugely material" to the economy as a whole.

"We're a little bit poorer because we're not going to have the [previously forecast] production within the economy," he said. "Within the context of the economy - which is about $200 billion dollars a year - it's not big enough that it's going to cause a material change in the outlook for the economy."

Eaqub said that reduced output from Tui could be offset by new oil discoveries.

"There's a huge amount of oil exploration that has happened in the last five years or so," he said.

Brazilian oil giant Petrobras has an exploration permit covering 12,333sq km of ocean off East Cape, while Anadarko, a Houston-based petroleum firm, has been working off the Canterbury coast with the aim of drilling as early as next summer.

Production at Tui began in 2007, 4 years after its discovery.

Initial production was higher than expected, and reserves were revised up on a number of occasions.

Salisbury said Tui had produced 31 million barrels of oil to date.

Oil produced from the field was sold at a premium to the Brent price, he said. Brent was trading at almost US$118 a barrel in London yesterday.