Shell still committed to exploration – chairman

By JAMES WEIR – BusinessDay.co.nz
Last updated 05:00 12/04/2010

Shell is eying up a potential oil or gas field east of the giant Maui gas field and may drill the “interesting” Ruru prospect next summer, after re-drilling seven wells at Maui in an effort to extend the field’s life.

Shell remains committed to its oil and gas production and exploration business in New Zealand, despite recently selling its petrol station business for almost $700 million, according to Shell Companies in New Zealand chairman Rob Jager.

The $696.5m from the sale of the petrol business will not be going directly into investment in the New Zealand upstream business.

“Each part of the business makes its business case within the global environment and then funding is allocated accordingly,” Mr Jager said.

It had been a good year for Shell’s upstream business, with revenues from its majority owned Maui gas field and its 48 per cent of the Pohokura gas field, which Mr Jager called the “jewel in the crown”.

He dismissed any suggestion that Shell was not interested in exploration in New Zealand.

“Shell’s focus has been on our existing infrastructure,” he said, including extending the life of Maui by presently re-drilling wells, though results of that effort are not yet known.

Shell and its partners are also looking at drilling Ruru, Mr Jager said, and depending on availability of drilling rigs, the well could be drilled “as soon as next summer”.

The exploration well at the Ruru prospect could cost between $20 million and $60 million and would be another sign of Shell’s intention to stay in New Zealand’s oil and gas production and exploration business.

If successful, Ruru would be a “near field” that could be tied into the existing Maui gas platform and pipelines to shore, making it cheaper to develop than a standalone field.

The “frontier” Ruru prospect is just to the east of the Maui licence, closer to the Taranaki shore.

The prospect could hold oil, gas or a small gas field, but that would not be clear till a well was drilled. It could be some years before any development, and Mr Jager would not speculate on its possible size.

It was “sufficiently interesting” to drill, but it was not in the Maui size, he said. There was “not a high possibility” of a field as big as Pohokura either, which cost $1 billion to develop.

“If we are fortunate and it is a large oil discovery, we won’t tie it in, (to Maui) but if it is (small) gas condensate, the Maui infrastructure is an obvious way of getting it to shore,” he said.

n the past year, Shell spent $60 million re-drilling four wells at its Maui-B platform and an unspecified but probably similar amount on three more wells at Maui-A in an effort to extend the life of the Maui field, now in its twilight years.

The wells around Maui aim at recovering “by-passed” gas that has not been picked up during the field’s 30 year life and that could extend it by several years. Just how long remains unclear, but new technology meant the joint venture partners in Maui could go after pockets of gas that would not have been considered just 10 years ago.

For example, it was possible to drill horizontally in layers just eight metres thick.

Shell says it is interested in other potential fields around New Zealand, including the Great South Basin off the south of the South Island, though it is not involved in seismic testing there. “We look very actively and seriously at the Great South Basin,” he said. “We like doing business in New Zealand.”

Pohokura had been a great success and was “the jewel of the crown” producing 40 per cent of New Zealand’s gas, about 70 petajoules a year.

“Pohokura is right at the start of its life cycle,” he said, with seven wells and there were some leads they could look at to expand the field over time. “But that is not to say you don’t look beyond that (existing producing fields).”

Though Pohokura has been a commercial success, one of the partners in the field, Todd Energy, is claiming $274m in damages in a High Court case against Shell and OMV, the other partners in the field.

Todd claims Shell and OMV colluded to limit production from Pohokura. The case started in the middle of February and is expected to end around the middle of this month. A ruling is expected to be some months away. Mr Jager would not comment on the case.

While re-drilling at Maui-B has finished, it was too early to say what the results of that drilling programme were. The wells are now being completed.

“They are pretty exciting wells,” he said. By drilling from Maui-B’s platform it was cheaper and so more economical to go after smaller “more risky opportunities”.

The drilling rig has now moved to Maui-A where three more wells are being drilled by the joint venture partners, also targeting by-passed gas.

The targets were “relatively small,” he said, but they were critically important for the ongoing life of Maui in its fading years. A 30-year gas contract ended last year, but any new gas would be sold under first right of refusal to Contact Energy and Vector.

If they don’t want it, the gas would be available on the market.

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