Remoteness Has Charm, Risk
Deep Kiwi Waters Hold Promise
To hear long-time New Zealand geologist Dave Bennett describe it, understanding when and where to drill for oil is a lot like ... well, in this PC world, let him tell you.
“I always characterize oil and gas fields as female,” he says. “They’re so unpredictable.”
And that may be part of the charm.
There has been a renewed buzz of late as to the mysteries and hydrocarbon potential beneath the deep waters of New Zealand, which is odd, considering it is a place that Bennett once said didn’t really have an industry.
“We don’t realize the potential that’s beneath everyone’s feet,” he said a few years back.
Christopher I. Uruski, a geoscientist who is currently running the frontier basins section at the Institute of Geological and Nuclear Sciences in Lower Hutt, New Zealand, laughs when he is told what his colleague has said.
“Dave Bennett (whom he affectionately calls one of the ‘oily characters down here’), another ex-patriot Welshman like myself, is right,” Uruski said, “but the real potential is in deep water rather than beneath our feet.”
Unfortunately, Uruski added, “New Zealand’s oil companies definitely don’t have the money to drill in deep water, so the general perception is probably true as well.”
That may be changing, in part because the country may not have much choice.
According to the Ministry of Economic Development in New Zealand, the production of oil (condensate/naphtha) and gas hit record lows during 2005. Specifically, oil production dropped to below 1985 levels; net gas production dropped to levels not experienced since the mid-to-late 1980s.
Despite these numbers, recent discoveries in Pohokura, Maari, and Rimu and Kauri have some in the industry excited.
Mac Beggs, director of GeoSphere, a New Zealand-based and owned oil and gas consulting company, is one of them.
“It is deep water that represents most of New Zealand’s big-upside prospectivity,” Beggs said, “and if the economics stay positive, I expect it will be put to the test over the next few years.”
Bad News, Good News
Finding the oil and gas is one thing; what happens after is where the headaches occur.
Eric Matthews, asset manager at Australian Worldwide Exploration, an oil and gas exploration company active in New Zealand, has said “deep water is a good place to look for oil and gas, forgetting the problems of getting the stuff out of the ground once you’ve started.”
Still, Uruski is upbeat.
“New Zealand’s small industry is consolidating,” he said. “It’s been quite an effort to get these fields developed, though pretty soon the companies will be enjoying a positive cash flow for a change. It’s then that they’ll start thinking about exploration again.
“Several operators in New Zealand are already well-positioned,” Uruski added, “but I expect there to be some new players here after next March when the Great South Basin round closes.”
The New Zealand government currently is running a licensing round for the Great South Basin, offering 40 x 9,000 km2 blocks. Uruski says major oil companies are taking a look at the data and interest is high.
“I think,” Uruski said, “that the Maari, Tui, Amokoura and Pateke discoveries, also in the throes of development right now, will make a great difference to the way New Zealand is seen by the industry at large as they are all offshore oil fields.”
Beggs believes that Tui and its satellites have affirmed the excitement, but says it is important to keep the potential in perspective, and points to a discovery made in 2000.
“Pohokura (a field in New Zealand’s Taranaki Basin) ... pales in comparison to gas discoveries off Western Australia and elsewhere,” he said.
As mentioned, the stability of the region is key. New Zealand has strong political institutions, a well-educated population and a market-oriented mind-set.
There is something else, too: tranquility.
Still, for all the renewed, albeit cautious, optimism in New Zealand, a place some are saying could have the potential to join OPEC, there is the matter of the evidence.
On this matter, Uruski is optimistic.
“The body of evidence is growing rapidly and is partly responsible for the new air of confidence,” he said. “The presence of large petroleum-bearing basins has been known for some time, but several factors have discouraged exploration.”
Those factors include:
- New Zealand’s small local market.
- A perception that New Zealand is gas-prone.
- The country’s most attractive basins lie in deep water.
Fortunately, that perception seems to be changing.
“The limited life of Maui, new scientific evidence on New Zealand’s oil-prone coals, new oil discoveries and the present oil price have all helped to change the industry’s previous thinking,” Uruski said. “This has been combined with strong government-led promotion of New Zealand as an exploration venue to produce the new feeling of optimism.”
Modeling studies at GNS Science suggest that some 20 billion barrels of oil may be trapped in deepwater Taranaki, Uruski said. “If 50 percent is ultimately discovered, perhaps five billion barrels may be produced from that basin.
“I think it is realistic to expect a couple of years of seismic surveying followed by drilling an initial batch of, say, 10 wells in that basin,” he said. “I suppose we’re talking about an investments of about $US 1 to 2 billion.
“The Great South Basin probably has larger potential, so we’re talking of perhaps 15 billion barrels,” he said.”
Uruski also says that since the basins investigated so far lie within New Zealand’s Exclusive Economic Zone, he doesn’t expect there to be challenges from any other country.
He is, though, somewhat dubious of the OPEC comparison.
“New Zealand is a net importer of oil, to the tune of about $NZ 6 billion a year,” he said. “It is likely that New Zealand would remain a relatively modest player on a world scale.
“For New Zealand, on the other hand, with a population of only around four million, the effect would be akin to the discovery of oil on Norway.”
Uruski sees the usual road blocks: “The main barriers to exploration are financial and will,” he said. “So far, explorers have played it fairly safe. Generally, explorations companies like to expand exploration efforts incrementally from land to shallow waters, further offshore, gradually getting deeper. New Zealand’s potential lies mostly in deep water, so it needs someone with deep pockets to take the plunge.”
Beggs, too, while optimistic, doesn’t discount the hurdles.
“Certainly activity is up compared to the past 20 years,” Beggs said, “and I have held the view throughout that the geological fundamentals are favorable, but remoteness from substantial markets and the industry service supply chain is certainly a big hurdle.
Eric Matthews’ concerns also are pragmatic.
“Access to offshore drilling equipment was a pressing issue,” he said, “and that the rig market is extremely tough.”
Matthews also said in a recent interview that he didn’t “believe it’s suddenly going to get any better. New Zealand’s a long way away from anywhere, and that just compounds the difficulty of getting a rig.”
Uruski says the irony is what makes New Zealand so desirable for exploration is the very thing that makes it such an uneventful place for explorers.
“Explorers have told me ... New Zealand is much too nice a place to find oil,” he said. “Really, it is not proximal to anything much, apart from Australia and Antarctica, which also have small populations. Our remoteness is a definite disincentive, particularly for those who still think they are in danger of finding gas here.”
Still for all the country’s niceness and its less than stellar past in these matters, Uruski is one of the more optimistic of all the “oily” characters.
“I think New Zealand’s time has come.”