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April 2017 O&G Wrap

By Neil Ritchie

Shell New Zealand has started the much anticipated sale of its Kiwi petroleum exploration and production assets, with long-time partner Todd Energy taking complete control of the onshore Taranaki Kapuni natural gas field, while Shell takes over all of operating company Shell Todd Oil Services.

The deal, announced in early April, sees the Todd Corporation subsidiary relinquishing its half stake in Shell Todd Oil Services (STOS) while taking complete ownership of, and operatorship of, the Kapuni field.

Shell and Todd Energy announced the respective sale and purchase agreements though they have not disclosed the sums of money involved.

Shell NZ has been the majority partner and operator of the near-shore Taranaki Pohokura gas field for the past 10-plus years and now effectively takes over as operator of the offshore Taranaki Maui gas field through its acquisition of all of STOS. It is well known in the industry that Shell has effectively run STOS for years, while Todd Energy has preferred to own and operate its own onshore fields, such as McKee and Mangahewa.

“Todd is more agile than the multinational Royal Dutch Shell and Todd wants to operate all its onshore fields, utilising its own Big Ben rig and the experience it has gained during recent years with its on-going McKee-Mangahewa expansion project,” one commentator said recently.

“And I’m sure Todd will want to use its expertise, particularly regarding downhole stimulation projects, doing similar things with Kapuni, making new producing horizons, tighter sands, commercially viable,” he added, referring to the latest 3D seismic survey of the field, which should help extend the economical life of the mature field that has been producing natural gas and condensate (light oil) since 1969.

Previous seismic surveys over the Kapuni field concentrated on the main producing zone, the K3 sandstones within the Eocene-aged Kapuni Formation.  However, the focus of the latest 3D survey was the shallower and more complex K1 and K2 sands that extend over much of the mining licence.

Kapuni’s 50 STOS staff are expected to transfer to the new Todd-owned operating company.

Shell NZ chairman Rob Jager has recently said the STOS transaction “will simplify the structure for any possible changes to the remaining (production) assets,” referring to the probable sale of its major interests in the Maui (83.75%) and Pohokura (48%) fields.

Royal Dutch Shell last year appointed international investment bank JP Morgan to review its billion-dollar-plus portfolio of New Zealand exploration and production assets as part of its $US30 billion global asset sale plan.

Jager has given no details about Shell NZ's intentions regarding its offshore exploration licences in the Great South (60%) and New Caledonia (37.5%) basins, though commentators say these interests are also likely to be sold, leaving Shell clear to exit New Zealand.

Jager has added that there is no timeline for the sale of the remaining assets, though commentators believe this will occur shortly, almost certainly by the end of the year.

Royal Dutch Shell, like many other multinational oil companies, has been rationalising its global portfolio since oil and gas prices dipped about two years ago -- a factor exacerbated by Royal Dutch Shell’s 2016 $US50 billion purchase of UK energy company BG.

Todd Energy chief executive Joanna Breare has said Todd is “very pleased to increase our stake in the Kapuni natural gas field”.

Meanwhile, the consolidation of energy companies’ interests, particularly in frontier regions, continues with Aussie listed Woodside Energy relinquishing its interest in and operatorship of offshore Taranaki exploration licence PEP 55793 (Vulcan), along with 30 percent partner New Zealand Oil & Gas.

However, NZOG is keeping, for now, its offshore Canterbury Clipper exploration licence PEP 52717, along with 50 percent partner ASX-listed Beach Energy, saying several potential partners are "studying the data" and that NZOG may be willing to put up more of its own capital if one of them comes on board.

Chief executive Andrew Jefferies has recently said NZOG hopes the permit will turn out to be "a new North Sea in the South" as the Barque prospect within the permit has been ranked ninth in a list of the world's top oil and gas targets. Top of that survey list is the Ironbark prospect off Western Australia held by NZOG subsidiary Cue Energy Resources.

Latest estimates of total in-place petroleum reserves within the Barque prospect could be as much as 11 trillion cubic feet (tcf) of gas and 1.5 billion barrels of oil or condensate across three different levels, with the primary reservoir target estimated to contain up to 5.5 tcf of gas and 785 million barrels of liquids.

And NZOG is soon to return $NZ100 million of capital to shareholders -- funds available after NZOG sold its 15 percent stake in the offshore Kupe gas field to Genesis Energy for $NZ168 million.

Meanwhile, confident Canadian listed junior TAG Oil has committed to a capital budget of about $C27.4 million for the fiscal year ending March 31, 2018.

This will be funded entirely by forecast cashflow and working capital. A further $C8.4 million may be spent of incremental capital expenditure depending largely on finding suitable joint venture or farm-in partners and continued improvements in oil prices.

TAG has recently successfully raised $C15 million to enable it to accelerate planned development and drilling programmes (almost exclusively in onshore Taranaki). Planned activities include drilling two exploration wells at Sidewinder East (PEP 55769); drilling two exploration wells at Cheal East (PEP 54877); drilling one exploration well at Puka (PEP 51135); and continued appraisal of the potentially commercial Cardiff field;

There will also be the acquisition and reprocessing of seismic data over Sidewinder North (PEP 57065) and the recently acquired onshore Queensland PL-17 permit, as well as the commercialisation of the Supplejack (PEP 57065) gas discovery.

Diligent TAG intends ending the 2018 fiscal year with at least $C10 million in cash and revenue from operations of about $C28 million (assuming an average Brent crude oil price $US55 per barrel. It hopes production will average about 1400 barrels of oil equivalent per day (boepd), with about 75 percent of that being oil. And, as the 2018 fiscal year ends, TAG hopes production will increase to about 1900 boepd.