Shell Reduces Exploration Funding in New Zealand

As part of the annual global exploration capital allocation process, the Royal Dutch/Shell Group has decided to reduce the level of exploration funding available to Shell New Zealand over the next 12 months.

Shell New Zealand Chairman Dr Lloyd Taylor says that despite this decision, there will be no fundamental change to Shell's business strategy or business positioning in New Zealand.

"Rather the decision reflects a more tightly focused business strategy that is a direct consequence of the global competition for risk capital," Dr Taylor said.

"The immediate focus of Shell New Zealand's Exploration and Production business is upon improving the return from its very significant investments of the last few years in New Zealand. This will be achieved by focusing on the immediate requirement to bring on-stream the Pohokura gas field, while at the same time maximizing the utilization of its existing asset base. To put this in perspective, we have exploration and production assets of approx $3.5 billion, and face a further investment of approx $500 million over the next two years to realize continuity of gas supply in the face of declining Maui production.

"The decision to reduce exploration funding in 2004, follows the expenditure of over $17 million in the last two years on exploration evaluation studies and drilling. Unfortunately, this effort failed to discover material new hydrocarbon reserves, nor define new opportunities for exploration that are comparable to those available elsewhere in Shell's global portfolio.

"This basis and potential consequences of our global exploration capital screening process have been clearly stated in industry forum such as the Petroleum Conference in early 2002, when we said that by virtue of its size, Shell would only pursue material exploration opportunities with the potential to contribute substantially to its global reserve replacement and production growth goals. Unfortunately the exploration effort of the last few years has failed to identify such new opportunities in the New Zealand portfolio.

"As a result, in the last year, we have divested to parties too whom the opportunities are material, the exploration acreage acquired with Fletcher Challenge Energy, as well as our interest in the Maari oil field. This goes way beyond that sought by the Commerce Commission at the time of acquisition of Fletcher Challenge Energy. As a result, we have contributed to the creation of a more vibrant, diverse and competitive exploration industry which is able to pursue the exploration opportunities that are present in New Zealand, notwithstanding the fact that these opportunities may not attract the attention of a company of Shell's size.

"Shell will continue to be one of New Zealand's biggest energy companies through our continuing investment in Pohokura, Maui and Kapuni," Dr Taylor said.

"Shell is also continuing to address the issue of long-term security of gas supply for New Zealand, investigating the potential of Shell's global portfolio of LNG technology, assets, and expertise for use in New Zealand.

"Shell is proud to have played such a major part in the New Zealand oil and gas story, and we are committed to continuing that role through our ongoing investment in New Zealand's three largest gas fields," Dr Taylor concluded.

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