Is the Last Big Pacific Offshore Play Heating Up?

New Zealand's offshore basins are getting lots of action. For that matter, so are onshore fields. And it could be in the nick of time.

Around New Zealand, you'll find lots of action exploring the country's on- and offshore basins. The target is natural gas, and there appears to be a lot of it. Many believe the region houses the last great unexplored basins in that part of the world. And a supply of gas is needed soon to replace declining fields. If a little oil comes along that will be OK too. The small, island independent nation and member of the British Commonwealth will just add it to its exports.

Growing Activity
In November, New Zealand's Energy Ministry said 23 bids have been received for 17 blocks in the Taranaki and North Taranaki basins. This is the country's current hot region for activity and leasing.

The onshore Taranaki blocks encompass 1,528 sq km and are close to other fields currently producing oil and gas. There are also six offshore blocks covering 6,700 sq km.

The ministry plans to announce names of successful bidders in January.

Nine of the blocks lie offshore under 50 to 200 meters of water, and eight are on land.

Winning bidders will be required to drill a well within four years of the permit issue date, but many of the bids involved more immediate commitments, according to the ministry.

Considerable activity is already underway in the basin. In December, two Australian companies began negotiations to gain a stake in the Kupe gas field. The companies, Origin Energy and Santos, are negotiating with the New Zealand state power company, Genesis Power, to buy part of its 81 percent interest and become field operator.

New Zealand is on a program to privatize development of oil and gas. Other companies are also on the Kupe shortlist and selection is expected soon.

Drilling activity is high. New Zealand Oil and Gas plans to drill a second well (Amokura-1) in the basin some 4 km from its February discovery (Tui). The underlying field has potential recoverable volumes of 100 million barrels. If Amokura confirms as little as 15 to 35 million barrels, that would be enough to proceed with development. The company plans a third well nearby for either further exploration or appraisal.

Canadian operator, TAG, says it has completed seismic interpretation of the onshore and offshore Taranaki basin and identified a number of low-risk shallow prospects. Swift Energy began deepening its Tuihu well to test gas shows. Stakeholder Indo-Pacific said it would use the experience in planning nearby deep gas projects over the coming years.

There is more, including major oil company interest and other basins to be explored. All of it makes clear a picture of increasing interest. And it is also clear that New Zealand needs much of the potential energy for its own use.

Current Energy Mix and Usage
Currently, New Zealand's growing economy is experiencing a 2 percent annual increase in demand for energy, just as its major natural gas supply field is running out.

The field, Maui, is the country's principal source of natural gas. Discovered over 30 years ago, it is now nearing depletion. Maui had been supplying 80 percent of New Zealand's oil and gas needs.

Over the last 10 years, natural gas-fired electric generation has increased 5 percent per year. About half of the gas produced in the country is used for electricity.

Actually, New Zealand's abundant rivers might provide the energy to make up much of the loss with hydroelectric power. But New Zealand is a dramatically beautiful country with excellent tourism prospects and a small population, and there is widespread reluctance to channel more of its running water through turbines. Geothermal energy faces problems of a different sort. And, of course there is the usual "NIMBY" (i.e., not in my backyard) problem to be faced in siting new power plants.

With energy demand forecast to rise 18 percent by 2025, there is no doubt the economy will falter without more energy; more gas seems to be the preferred option.

As it experiences the upcoming energy shortfall, New Zealand is wrestling with evolving from having a government-run energy program to having privatized operators.

In April, the government agreed to sell its 11 percent stake in the Kupe gas field to state-owned Genesis Power and transfer central North Island geothermal assets to Mighty River Power.

Energy Minister Pete Hodgson said selling the Crown's interest in the Kupe gas field, which is off the southern Taranaki coast, would smooth the path for the development of the field by Genesis. Genesis owns 70 percent of the field, with the remaining 19 percent held by NZ Oil and Gas Ltd.

"Genesis intends to appoint a field operator for Kupe and work towards bringing the gas onstream in 2006," Mr. Hodgson said. "The government does not intend to be commercially involved with the development of the field, and a sale to Genesis will enable the company to move ahead with certainty over the ownership structure."

The government also owns a number of geothermal bores, largely in the central North Island, which it will transfer to Mighty River Power. At present, the only major production comes from the supply of steam to the Norske Skog Tasman plant at Kawerau.

"Some of these wells, particularly those in the Kawerau geothermal field, have considerable potential for geothermal power development," Mr. Hodgson said. "The government believes that Mighty River Power is best placed to undertake this development."

Settling Maori Claims
Late last month, the government began selling its 11 percent stake in the Kupe gas field to Genesis Power. Genesis in turn is taking bids from private companies for concessions. But Genesis had to wait until now to do something because claims by indigenous Maori Indians stood in the way.

The way was cleared for the Genesis sale after the government formally rejected a Waitangi Tribunal report concerning Maori claims on oil and gas.

The Waitangi Tribunal, an independent board that makes recommendations on historic Maori grievances to the government, said earlier that Maori tribes were entitled to millions of dollars in petroleum royalties that had been collected by the central government.

It said Maori had once owned the petroleum under their lands and were entitled to compensation when the resource was nationalized in 1937. Maori tribes lost their historic interest and property rights in petroleum due to settler breaches of the nation's founding Treaty of Waitangi (signed in 1840), it noted.

The sale was delayed for six months while the government worked out its reply to the tribunal's compensation proposal. Energy Minister Pete Hodgson said Friday that the "government has confirmed its view that publicly owned petroleum assets are not available for use in settling Treaty of Waitangi (grievance) claims."

Officials had determined that government "policy and legislation regarding petroleum were a valid exercise of (its) treaty rights in 1937 and remain so," Hodgson said in a statement.

The government's 11 percent share of the field off the southern Taranaki coast could now be sold to state-owned electricity enterprise Genesis Power, Hodgson said. Genesis already owns 70 percent of the field.

Unlike the way natives have been treated in many other countries, New Zealand has made formal apologies for past settler crimes and paid the Maori hundreds of millions of dollars in compensation over the past 14 years for lost and stolen lands and lost fishery resources.

Lord of the Rings Country
Nixing hydropower in favor of natural gas-fueled plants has a fairy-tale-like quality about it to a North American. But as anyone who's been there or seen the films of Tolkien's Ring will tell you, New Zealand's stunningly beautiful scenery is the country's most appealing feature, and central to tourism. New Zealanders will not allow anything to be done to compromise it.

In addition, there is demand to leave rivers in their natural state, since the Maoris consider rivers such as the Waikato on the South Island sacred and highly symbolic. The Waikato is also central to Genesis's Huntly hydropower plant. So a few rough spots lie ahead. But with the riches of hydropower and geothermal energy, joined by new natural gas, New Zealand should be able to get by nicely.