Shell pulls out of search for NZ oil, gas

By CHRIS DANIELS energy writer

Too many dry wells and better prospects overseas have ended Shell New Zealand's local oil and gas exploration.

The local division of the global energy giant Royal Dutch/Shell said yesterday that it would no longer bid for prospecting rights and would stop looking for oil and gas in New Zealand.

It is a blow for the Government and the energy sector, as exploration is being encouraged in an attempt to find replacements for the dwindling Maui gasfield.

Local Shell chairman Lloyd Taylor said the move did not mean any fundamental change to its business strategy in New Zealand. The company had spent $17 million in the past two years on drilling and site evaluation, he said.

"Unfortunately, this effort failed to discover material new hydrocarbon reserves, nor define new opportunities for exploration that are comparable to those available elsewhere in Shell's global portfolio."

Instead, capital will be spent in areas such as the Gulf of Mexico, West Africa, the Middle East and Kazakhstan.

About 10 Shell workers based in Taranaki are expected to lose their job as a result of the decision.

Shell will continue with its major work on the Pohokura natural gasfield, which is expected to start producing gas in 2006.

Taylor said the company would spend about $500 million in the next two years to "realise continuity of gas supply in the face of declining Maui production".

This year's winter power crisis was caused by a combination of drought in the South Island and the depletion of the Maui field.

In past dry years, North Island thermal power stations, such as Huntly and Otahuhu B, were able to draw on Maui, substituting for the South Island hydro generators.

The Pohokura field, which is 48 per cent owned by Shell, will replace the Maui field as the primary source of natural gas for New Zealand.

In May, the Government announced a funding boost for the Institute of Geological and Nuclear Sciences to help improve the odds for oil and gas exploration.

About $21 million will be spent over the next six years on research into potential oil and gas deposits, in the hope that it will encourage private explorers to drill here.

The institute's petroleum research leader, Peter King, said at the time that good research into "sedimentary basins and their petroleum systems had never been more important to New Zealand."

But, he added: "New discoveries should be only a matter of time because New Zealand remains relatively unexplored and geological prerequisites for petroleum are widely present."