New Zealand Moves On to Radar of Oil Global Giants

WELLINGTON (Dow Jones Newswires), June 4, 2010

New Zealand has emerged as an oil-exploration hotspot for some of the world's top energy companies, but the surprise rush of interest is intensifying concerns among environmentalists about a local version of the catastrophic Gulf of Mexico oil spill.

Brazil's state-owned giant Petroleo Brasileiro this week secured a five-year permit to explore the Raukumara Basin, located off the North Island's East Coast.

The move comes a few months after Anadarko of the U.S. acquired acreage off the coast of New Zealand for the first time, while ExxonMobil is hoping to strike oil or gas in the Great South Basin.

"I'm sure that all Petrobras' competitors will be looking with some interest at their involvement here," said Energy and Resources Minister Gerry Brownlee. "It's verification New Zealand is a very prospective country."

Most oil and gas deposits discovered in New Zealand up to now have been fairly small by international standards. An exception is the Maui field in the Taranaki Basin, discovered in 1969, which produced 176.32 billion cubic feet of natural gas at its peak in 2001 and has accounted for over 80% of New Zealand's natural gas consumption.

John Kidd, head of research at McDouall Stuart, said, "It's a very momentum-driven industry. Once you do get some momentum and you get some critical mass of major players involved in a certain geography then others don't really have a choice but to pay attention."

In response to questions about the environmental risk, Brownlee said the government is promoting legislation to govern deep water drilling. This includes creating a new Environmental Protection Authority.

"The environmental disaster in the Gulf of Mexico reinforces the importance of this work. The government is determined to ensure that New Zealand's marine environment is properly protected," said Environment Minister Nick Smith.

Brownlee said New Zealand had a team on the ground in the Gulf, where thousands of barrels of crude are spilling from a damaged well operated by BP. Anadarko, which recently obtained a stake in two blocks off New Zealand's South Island, is a part-owner of the leaking Gulf of Mexico well.

"We need to be right up with the play. We need to know how to avoid that sort of catastrophe happening again," he said.

But that didn't satisfy Green Party Co-Leader Russel Norman, who said New Zealand's rush to drill in deep water was reckless.

"It is environmentally reckless to start a deep water oil drilling program in one of the most important ecological regions on the planet when the oil companies don't know how to plug deep water oil wells if anything goes wrong," Norman said.

John Pfahlert, executive officer of the Petroleum Exploration and Production Association, said the stepped-up regulatory response is "just another factor that'll go into the pot" for companies ahead of investment decisions, but the rising demand for oil globally would dominate their thinking.

Petrobras manager Marcelo Vertis said his company is keen to explore in the gas-prone region and was attracted by New Zealand's open business environment and low political risk.

The government has identified 10 prospective basins offshore New Zealand and is reviewing two separate offers for blocks off the North Island coast. Brownlee said previously that New Zealand's hydrocarbon exports could increase as much as 10-fold over the next 15 years, generating more than NZ$30 billion a year in export revenues by 2025.

However, Kidd said it's too soon to tell.

He pointed to the Taranaki basin off the North Island's west coast, which has produced more than 2 billion barrels of oil so far. "That's what we do know and Taranaki is very small relative to our territorial waters," he said.

Analysts are equally cautious.

"The strike rate is generally only one in 10 in terms of wells drilled, in New Zealand it is probably one in 15 or one in 20," said Pfahlert.

Copyright (c) 2010 Dow Jones & Company, Inc.