Rebuffed Shell denies pull-out plan

Royal Dutch Shell says it remains committed to oil and gas exploration in New Zealand, despite court documents showing it wanted to re-organise its local operations in preparation for a sale.

"Shell has no plans today to leave New Zealand," a spokeswoman said last night. "Our activities here are at an all-time high."

She cited the oil giant's programme of drilling to extend the life of the Maui oil field off the Taranaki coast, now well past its peak production, and said it was also working to develop New Zealand's largest gas reserve, the Pohokura field, which is due to start producing at the end of this year.

Details of the planned re-organisation emerged in a judgment that has blocked Shell's bid to take over operation of the Maui gas field.

The High Court ruled Shell Todd Oil Services (STOS), a joint venture between Shell and Wellington-based Todd Energy, would be the operator of the field.

Shell wanted to remove STOS because it saw the arrangement as a barrier to selling the field.

Shell correspondence shows its executives arguing that Todd had too much control over the provision of services to joint ventures.

"If asset sales are contemplated in the future, potential buyers are likely to discount asset purchase prices to reflect the extra costs and complications of inheriting the STOS joint venture as field operator," said oneletter.

The letter said the amount of any such discount was speculative, but a 10 per cent discount in the purchase price would cause an "erosion" of more than US$100 million in Shell's New Zealand portfolio.

Shell also claimed it had lost confidence in the joint venture's ability to run the two companies' operations in New Zealand.

The partners' relationship had become dysfunctional, and there was a risk that the existing structure would cause delays in delivering gas from Pohokura.

Shell also wanted to bring the operation into line with its other operations around the world, in which one of the field owners operated the field.

But the court ruled STOS had run the fields effectively.

"There is no evidence to indicate that Todd's actions in relation to STOS have been motivated by anything other than Todd's wish to minimise STOS's costs and thus maximise returns to Todd from fields and projects," the judgment said.

It also criticised Shell's conduct in the dispute, and said it had misled the court and partner OMV in blaming delays at Pohokura on STOS.

Todd Energy, the biggest New Zealand-based oil company, said the decision vindicated its 15-month effort to resist Shell's takeover of Maui.

"Todd Energy looks forward to continuing an orderly and efficient operation of Maui as a key component of New Zealand's energy supply."

Shell said it was disappointed with the court's finding and was considering whether to appeal.

STOS has operated in New Zealand for more than 50 years, and was formed to develop the Kapuni gas field, in which Shell also has stakes, and then the Maui field.

It now operates the Pohokura gas field being developed in Taranaki under contract to Shell.

SHELL TODD OIL SERVICES

* Incorporated in 1955

* 50:50 joint venture between Shell and Todd Petroleum Mining Company

* Set up to develop the Kapuni gas field but later used to develop the Maui field and others.