$980m Kupe oil and gas field confirmed

Owners of the Kupe gas and oil field off the Taranaki coast have confirmed development of their estimated $980 million project will go ahead, with first production scheduled for mid-2009.

Kupe was expected to produce around 20 petajoules (PJ) of gas a year, about 15 per cent of this country's current annual demand, the joint venture said today.

It will also produce light oil condensate and LPG, commencing at 1.7 million barrels a year and 90,000 tonnes a year, respectively.

Origin Energy is the operator of the field and owns a 50 per cent stake in Kupe, listed explorer New Zealand Oil and Gas Ltd (NZOG) a 15 per cent stake, state-owned Genesis Power 31 per cent, and Mitsui New Zealand 4 per cent.

NZOG chairman Tony Radford said the final decision to proceed was made only after considerable pre-development work, covering technical design, consultation and assessment.

Work had included design of a new onshore production station to process gas from offshore , and a renegotiated gas supply contract to partly accommodate higher capital costs resulting from the booming oil and gas construction market.

Estimated reserves in the field, discovered in 1986, were also increased to 389 PJ equivalent.

The Kupe project will include an unmanned offshore platform constructed above the Kupe Field production wells and supporting up to six wellheads, along with the new onshore production station.

A shore-crossing, bored under the coastline cliffs, will connect the offshore pipelines from the platform to the production station and a network of onshore pipelines.

Construction is expected to start in Taranaki in September 2006, with the first development well due to be spudded in the first half of 2007.

The Kupe joint venture announced in October that estimated project costs were higher than originally anticipated, as a result of higher commodity prices and the unprecedented level of activity in the oil and gas market around the world.

Today's statement said a renegotiated gas supply agreement with Genesis Energy, coupled with higher condensate and LPG prices and the increased reserves announced last year, helped offset project costs to the extent that all the participants had the confidence to proceed.

The $980 million development budget included appropriate project contingencies such as for weather downtime during drilling of development wells.

Mr Radford said the high level of liquids production would benefit the owners, particularly given the expectation high oil prices were likely to continue through to the production stage.

Finance Minister Michael Cullen said the decision to proceed with the near billion dollar development of the offshore field was a vital step in securing New Zealand's energy future.

"This is an important signal that we are meeting our energy challenges. In particular, it will help deal with the uncertainty caused by the decline in supply from the Maui gas field," Dr Cullen said.

The project -- which will provide a long term gas supply for Genesis Energy's new gas-fired electricity plant at Huntly -- would be a major boost to the south Taranaki economy providing engineering and construction jobs.

It was also a sign the slowdown in the New Zealand economy would be shortlived, he said.

- NZPA