By Libby Middlebrook
The petroleum industry was a steady business achiever throughout last year.
Locally, a broad exploration and development programme dug up several good prospects and firmed up previous discoveries for commercial production.
But the big story of the year came from overseas: the enormous upswing in the cost of crude oil, which accounts for nearly 25 per cent of retail petrol prices.
About the middle of the year, the Organisation of Petroleum Exporting Countries (Opec) put the squeeze on international oil supplies to reverse a world glut that had sent crude prices spiralling to a 10-year low in December 1998.
The price of a barrel of crude rose from $US10 ($19.20) to more than $US25 by the end of last year - the highest level since the 1991 Gulf War.
Because New Zealand imports plenty of oil, motorists are effectively at Opec's mercy.
During the last six months of the 20th century, the cost of petrol jumped about 20c a litre - the largest increase by New Zealand oil companies in a decade.
It now costs consumers about $10 more to fill an average fuel tank than it did six months ago.
While motorists grumble about the cost of running a vehicle, the rise in crude prices has been nothing but good news for oil companies.
"Pricing's been much better than any of us could have expected at the beginning of the year," said Greig Gailey, chief executive of Fletcher Challenge Energy, the country's largest oil and gas producer.
"It returns oil to a price range where people can make a reasonable return. At $US12 a barrel we weren't making any money. I don't think anyone in the industry was."
Shell's managing director of exploration and production, Thijs Koeling, agrees.
"It's been a good year for exploration. It's been an even better year for production activities.
"Crude oil prices have helped us tremendously."
While new competition in the market from Challenge! and Gull benefited consumers by lessening the effects of rising crude prices on the cost of fuel, retailers such as Shell say the two companies did not affect profits during the year.
But that is hard to swallow considering the fact that Shell was forced to drop its petrol prices 2c a litre last year when other oil companies failed to follow suit.
Meanwhile, Shell's communications manager, Antonius Papaspiropoulos, says petrol prices must still rise significantly to improve the company's performance.
"We're still a way off.
"We're not in money-making mode on the fuel front, hence the onus is being innovative in other ways."
It appears that the rise in crude prices failed to encourage companies to step up exploration, perhaps because the past volatility of oil prices means no one is sure how long the high prices will last.
However, 1999 did turn out to be a big year for exploration, with several oil and gas gems emerging.
Houston-based Swift Energy struck black gold in south Taranaki last month when it discovered oil and gas at the wildcat Rimu-A1 prospect.
The company has applied for an offshore extension and plans to continue seismic testing at the site to confirm production viability.
"We haven't yet finished our analysis of the data but it looks really promising," says Donald Morgan, president of Swift Energy New Zealand.
Fletcher Challenge had a disappointing result from an exploration well south of the offshore Maui gas field early in the year, with no significant reserves found.
However, the company has big expectations of its Pohokura gas prospect, which will be drilled next month off Taranaki.
The company also completed a development well in the McKee gas field in north Taranaki last year, with further development planned for this year.
Mr Gailey says Fletcher Energy is still recovering from the slump in crude oil prices in 1998, but managed to maintain its exploration programme in Brunei and New Zealand last year.
US-owned Westech and Christchurch-based Orion continued testing on the East Coast during the year, following a gas discovery 10km northeast of Wairoa in 1998.
The site has the potential to prop up New Zealand's fast-depleting gas reserves, as does Maari, a Taranaki oil and gas prospect developed by Cultus, Todd Energy and Shell.
The well is expected to be in production by 2002.
Other key events last year included a High Court ruling that Caltex, Shell and Mobil had colluded when they simultaneously ended free carwash offers in Auckland in 1996.
The rise in crude prices also saw some caution on the corporate front, with Austrian company OMV having to lift its takeover offer for New Zealand exploration company Cultus Petroleum.
After a long-running battle between the companies over the purchase price, OMV finally succeeded in its takeover bid.
Oil companies also forked out millions of dollars to upgrade computer systems to avoid problems caused by the turnover to the year 2000.
Looking ahead, picking Opec's next move is fraught with difficulty, but producers are predicting a period of higher prices for crude oil.
"One of the big obstacles to cope with is the oil price," says Shell's Mr Koeling.
"Nobody can predict what is going to happen within the next month or the next year or even more importantly over the producing life of a field.
"Your investment decisions must be based on the bottom line at the end of the day and that is crucially dependent on the future oil price."
Todd Energy's managing director, Richard Tweedie, believes present crude oil prices are not sustainable.
"A long-run price that is sensible for the world economy and producers is probably $US18 per barrel."
Meanwhile, the outlook for petrol prices could worsen if Asian economies continue to grow at present rates.
Mr Gailey is looking forward to the energy division's split away from the Fletcher group this year, and a stronger focus on oil and gas exploration outside New Zealand.
Fletcher Challenge is expected to split up its four divisions, including energy, by the end of the year.
"We don't sit very comfortably with the rest of the group. We have very different capital demands from Fletcher Building, for example.
"We believe that if we're going to be a successful exploration and production company internationally then we need to be a separately listed company."
Meanwhile, Mr Koeling says Shell hopes to carry out a similar exploration programme this year compared with last.
A number of drilling programmes will be confirmed by June.
The company declined to release its exploration expenditure figures for last year.
There are still a lot of prospects onshore and offshore in New Zealand, says Mr Koeling.
"I'm sure there will be a lot of future for exploration and production activity here.
"The political climate is stable. It's a good country to work in.
"The economic climate is also very stable. The tax environment is generally good for the oil exploration and production industry."
Dearer oil price good news for explorers
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