Young explorer talks up lure of new black gold

By FIONA ROTHERHAM

Terry Swift, young and slick son of the founder of Houston-based oil explorer Swift Energy, dropped a bombshell at this week's 2000 Petroleum Conference in Christchurch.

He revealed that analysis of the company's Rimu find in south Taranaki had identified two further prospects, Kauri and Tawa, in the same permit area.

It could be New Zealand's largest discovery, he said,with reserves of 320 million to 900 million barrels of oil.

It is believed that Rimu alone could come on stream next year, producing more than 2000 barrels of oil a day and 170,000 cu m of gas.

Shell Todd Oil Services, operator of the permit just south of Rimu on the same structural foundation, is reconsidering its work programme.

It is the sort of discovery, on top of the East Coast gas find and the offshore Pohokura and Maari fields in Taranaki, that the Government hopes will lure other international explorers.

The reality check is how small Rimu could be.

Swift aims to drill a delineation well at Rimu in July and another later in the year, at Rimu or Kauri, at a cost of about $US8 million ($16.3 million).

Other industry players are sceptical about talked-up results. After Swift's announcement, one conference delegate is said to have loudly declared that an oilwell is only as good as what it brings out of the ground.

A laconic American voice added seconds later: an oilwell is only as good as what can be sold.

New Zealand faces a looming energy crisis, with the need to replace production from the giant Maui field as it enters the last third of its life.

The Government has been doing what it can to attract oil and gas exploration, which waned in the early 1990s.

Host countries worldwide compete intensely for exploration funding. Meanwhile, investors pour their money into the dot.com bubble rather than commodity plays.

John Mork, head of US-based Energy Corporation, which owns active Westech Energy - says New Zealand is an outstanding place to explore and produce petroleum.

It offers geologically promising areas and readily accessible markets in a favourable and stable political and economic climate.

Unlike in Mexico, exploration companies do not have to take out kidnap insurance because of their perceived ability to pay a good ransom.

The Acceptable Frontier Offer (AFO) permit regime introduced in 1995 allows explorers to bid when they like over any available area. Permits in the sought-after Taranaki Basin are via a competitive block offer. Use it or lose it provisions require companies to drill within three to five years.

The Government rakes in internationally competitive royalties.

Mr Mork said New Zealand had been long under-appreciated by the worldwide petroleum community because it was perceived to be gas-prone with poor domestic markets and distant export markets.

"Current facts dispel this perception."

A lack of oil service infrastructure outside Taranaki and high natural gas transport costs were problems, he said.

The industry also grumbles about Resource Management Act delays in obtaining consents and the need for more flexibility in the permit regime.

On the flip side, oil prices of up to $US30 a barrel from a low of $US10 stimulate exploration.

Last year New Zealand's oil and gas production was worth almost $2 billion. Direct Government revenue was $120 million.

The country is only 46 per cent self-sufficient in oil, with most local oil production exported.

New Zealand is underexplored by world standards. The Taranaki Basin, the only producing area, has had about 250 wells drilled - a density of about one well to 10,000 acres onshore. This compares to the similarly sized San Joaquin Basin in California, which has 67,000 wells drilled.

At the moment, 52 exploration permits cover six petroleum provinces. Of these, 30 are in Taranaki, 13 in the North Island East Coast region, three in Canterbury, three in the onshore Westland region, two in West Southland and one in Northland.

Area under licence has fallen in all regions in the past two years. Many of the early AFO licence holders relinquished their permits when faced with the expense of the year-three commitment to drill a well in a high-risk area.

While all the sedimentary basins have attracted at least some exploration attention, all but Taranaki are hindered by lack of information.

Ord Minnett energy analyst Chris Stone said: "There is the potential to hide several Maui-sized fields within the sparse existing seismic coverage."

A significant upsurge of interest in the East Coast Basin followed Westech Orion's gas find near Wairoa. But recent failures such as the Whakatu well in Hawkes Bay, the Hochstetter well in Taranaki and a deepwater well off Northland are a reminder to all players that oil exploration remains high-risk.

Litigation is also prevalent among upstream operators. US-based Conoco is embroiled in arbitration with Todd Energy, one of its Northland permit partners, over the huge costs of the unsuccessful exploratory drill.

Fletcher Energy chief operating officer Lloyd Taylor said that while joint-venture arrangements frequently attracted regulators' attention and litigation amongst co-venturers, they were essential to the achievement of a viable gas industry.

Fletcher Energy is the only listed company seeking to invest more in exploration, in particular searching for more gas.

But the shift of power to the gas producers as supplies dwindle is likely to spark considerably more equity market interest, especially if or when the dot.com bubble bursts.