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February 2017 NZ O&G Wrap

By Neil Ritchie

If independent international reports are anything to go by, the small New Zealand energy industry should this year follow its much larger overseas counterparts – slowly expanding exploration and production expenditure while keeping an eagle eye on oil prices and forecast demand for oil and natural gas.

According to a new Wood Mackenzie report, global upstream oil and gas industry projects are set to double in 2017 compared to 2016. And although exploration and production spending is still 40 percent below pre-crash 2014 levels, Wood Mackenzie anticipates this to increase, albeit modestly, by three percent to about $US450 billion during this year.

The two-year oil slump caused companies to become more efficient – cutting production costs, trimming exploration expenditure and increasing overall operating efficiencies.

And if international oil prices continue to sit around the $US50 per barrel range, then Wood Mackenzie is forecasting an average oil price of $US57 per barrel by the end of this year and gradually increasing to $US85 by 2020: The steady increase can be attributed to the growing supply-demand ratio, which is forecast to widen to about 20 million barrels per day (bpd) by 2025.

According to the S&P Goldman Sachs Commodity Index (GSCI), energy commodity prices rose more than any other commodity sector during 2016. The Spot Energy Index in the GSCI rose by 48 percent since the start of 2016, following major price movements in the international crude oil market, as the two major crude benchmarks—West Texas Intermediate (WTI) and Brent crude contributed 69 percent of that increased GSCI energy index.

After touching 13-year lows, international crude oil prices hit a 206 high last December after OPEC and non-OPEC countries announced significant production cuts.

And an International Energy Agency report forecasts world demand for gas increasing by 50 percent over the next 25 years.

So now many oil and gas companies, including some in New Zealand, are beginning to progress exploration plans that had been on the backburner while oil prices were in a slump.

In New Zealand this includes the country’s second largest private company Greymouth Petroleum finally preparing to drill at its new Kowhai D wellsite. Its Tiger Drilling Rig 246 is understood to starting the exploration well, believed to be targeting some deep Eocene-aged gas, during mid to late February.

And Aussie listed minnow Melbana (formerly MEO) says it and operator CX Oil (a TAG Oil subsidiary) plan to drill the onshore Pukatea-1 well in central Taranaki exploration licence PEP 51153 (the old Puka permit) during the second half of 2017.

Melbana also says the Pukatea prospect is a high impact exploration opportunity targeting a conventional reservoir, with prospective petroleum resources ranging from 1.3 million barrels of oil equivalent (mmboe) to 40 mmboe, with a best estimate of 12.4 mmboe. The Melbourne company adding that the chance of success for the Pukatea well has been revised upward from 16 percent to 19 percent.

Meanwhile, TAG has completed its first Aussie acquisition, with its wholly owned Australian subsidiary Cypress Petroleum purchasing 100 percent of Petroleum Lease 17 (PL 17) from privately-held Southern Cross Petroleum & Exploration.

TAG says PL 17 is an oil and gas production permit and high-value exploration acquisition covering 104 square kilometres in the Surat Basin, one of Australia’s first producing basins. It is located in a light-oil discovery trend and situated about 20 kilometres from and “on-trend” with the commercial Moonie oil field that has produced about 25 million barrels of light oil. PL 17 contains two undeveloped oil fields, the Bennett and Leichhardt fields, and the permit area is largely unexplored

The rather complicated purchase process consists of an initial payment of $A750,000 to Southern Cross, with further payments as follows: $A500,000 payable in cash on July 20, 2017; $A500,000 payable, at the discretion of Cypress, in cash or satisfied by shares in TAG on the second anniversary of the closing date; and $A750,000 payable, again at the discretion of Cypress, in cash or satisfied by further shares in TAG, on the third anniversary.

And Aussie listed company AWE has completed the sale of its 57.5 percent stake in the offshore Taranaki Tui Area oil field to Malaysian company Tamarind Management.

Kuala Lumpur-based Tamarind has now acquired all of the shares of AWE New Zealand and AWE Taranaki for US$1.5 million. The deal includes operatorship, assets and inventory, AWE’s oil hedge book, and a working capital cash balance of US$10.8 million.

AWE managing director and chief executive David Biggs has said the Tui sale will significantly reduce AWE's future abandonment liabilities for the mature Tui field, where the half-yearly production to December 2015, of 447,000 barrels, slipped to only 297,000 barrels for the half year to December 2016.

And industry commentators says fellow partner New Zealand Oil & Gas is also likely sell its 27.5 per cent stake in Tui, given Tamarind’s purchase offer and the Malaysian company’s experience in decommissioning mature fields. The decommissioning of Tui is likely to be a relatively simple and inexpensive exercise, probably costing only $NZ100 million or so, as there is no platform to decommission, only “unplugging” the floating production, storage and offloading (FPSO) vessel Umuroa.

The Tui Area oil field comprises the Tui, Amokura and Pateke oil pools and production from each pool is fed into the Tui gathering system and then into the Umuroa.

As well, NZOG has gained "control" of minority Maari oil field partner Cue Energy Resources by taking its total stake in the Aussie listed junior to just over 50 percent. Industry commentators wonder what NZOG is going to do with "control" of Cue, as the Maari-Manaia fields are Cue’s only Kiwi interest; it has some Western Australian  exploration permits but no production in Australia, though it has some in Indonesia.

There is also speculation about a possible future “merger” of the two companies as both NZOG and Cue have cut costs significantly and refined their future strategies, with NZOG having received $NZ168 million from Genesis Energy last month from the sale of NZOG’s 15 percent interest in the offshore Taranaki Kupe gas field. Work is underway to return $NZ100 million of capital to shareholders by next May, leaving NZOG relatively flush with cash and no or little debt.

Also the seismic vessels PGS Apollo and Amazon Warrior have now both left New Zealand waters after a spring-summer season of conducting “spec surveys” off various parts of the North Island, including Taranaki and the East Coast.

And, back onshore, Aussie listed company Origin Energy has completed the sale of its south Taranaki Rimu, Kauri, Manutahi fields (and the Rimu production station) to Brisbane-based Westside Corporation. Origin has also transferred the Rimu mining licence PMP 38151 and the Kauri exploration permit PEP 3855 to Westside, which operates the Meridian gas fields west of Gladstone in Queensland's Bowen Basin in a joint venture with Mitsui E&P Australia.

It is understood Westside’s focus for 2017 is on reinstating shut-in wells, well interventions, and other possible downhole work aimed at stimulating production. The company’s Josh Whitcombe is due to speak at the 2017 NZ Petroleum Conference in New Plymouth next month.

Finally, it is believed Ballance Agri-Nutrients, owner and operator of the onshore Taranaki Kapuni ammonia urea plant, is still progressing a possible multi-million-dollar revamp of its Kapuni plant and is believed to be close to securing a new Asian funding partner.