Shell joins oil search off Otago coast

The vessel Polarcus Alima will carry out three-dimensional seismic surveys costing $50 million in the next two years. Photo / Supplied

Shell has joined the hunt for oil in the Great South Basin and is ready for any protest action that may target new exploration.

Under the new joint-venture agreement, Shell will take a 50 per cent share in two exploration permit areas off the Otago coast while existing joint-venture partners OMV and PTTEP will each halve their share to 18 per cent and Mitsui Australia to 14 per cent.

The two permits cover 32,213sq km while another permit, covering nearly 18,000sq km east of Stewart Island, would be returned to the Crown under the agreement, which is subject to Government approval.

Shell says it was "unfortunate" yesterday's announcement came just days after one of its platforms leaked more than 200 tonnes of oil into the North Sea in the biggest spill in British waters for a decade.

Shell's New Zealand chairman, Rob Jager, said the company spent millions of dollars and man-hours checking and rechecking its systems.

"It's unfortunate that we've had an oil spill in the North Sea. I'm not sure what the cause of that is just at the moment," he said. "If we go into a drilling operation [in the Great South Basin] we will make sure our safety systems are robust."

Drilling an exploration well in water ranging from 800m to 1200m deep would be four years away at the earliest. In the new joint venture Shell would take over from Austrian company OMV as the operator when the coming round of three-dimensional seismic surveying was completed.

Jager said Shell had vast experience in deep-water drilling and had modular capping systems for wells globally that would be deployed to New Zealand by air should they be required. But its focus was on preventing spills rather than cleaning them up.

Shell had a policy of involving non-government organisations such as Greenpeace in discussions about exploration plans.

Greenpeace had targeted survey work by Brazilian oil giant Petrobras earlier this year off East Cape, but Jager had no idea whether the organisation would protest against the work further south.

"They're quite within their rights to protest - it challenges us and we quite correctly as companies are held accountable for our actions," he said.

"As long as it's done in a responsible manner, then in principle we don't have a huge issue with it."

Shell had been investing in New Zealand for more than 100 years and operating offshore wells for more than 30 years in the challenging conditions off Taranaki.

OMV NZ managing director Peter Zeilinger said about $50 million had been spent on survey work in the past four years. A similar amount would be spent on three-dimensional work during the next two years using a near-new ship, the Polarcus Alima.

Halving its stake was not a vote of no confidence in the basin but recognition of the need to bring in a big, experienced partner, he said.

"I would be very happy with 18 per cent of a large development rather than with 36 per cent with no discoveries."

He warned of the challenge of frontier basins.

"We've got to be realistic, this is not a gold rush but a very careful exploration process."

The Great South Basin has for the past 30-plus years offered huge promise but so far no rewards. Subcommercial gas-condensate was discovered in one well in the late 1970s and there were hydrocarbon shows in three other wells.

Last year oil supermajor Exxon Mobil surrendered its exploration licence in the basin.