Oil and gas man happy to ignore the rule book

David Salisbury says the early days with NZOG were exciting and tense. Photo / Mark Mitchell

David Salisbury reckons he's not one for necessarily following the rules.

Personality profiling proves it, the New Zealand Oil & Gas chief executive says, adding it's why he was not ideally suited to his former job, a lawyer in a large firm.

"I'm not the strongest in following rules, I'm a much more holistic and analytical type. I follow rules that make sense to me and don't follow rules that don't make sense. It's good for business development but bad for being a lawyer."

One rule he's sticking to is not selling the farm - in NZOG's case, more than $200 million in the bank looking for a home in a big, late-stage development or field that's already producing.

It's now becoming an increasingly important issue for investors, analysts and especially the company itself. Like any oil and gas company, the more it mines existing fields, such as Tui, the smaller its asset base gets.

"Obviously and disappointingly we haven't been able to come to the market with a deal."

Salisbury has been in the oil business-development game for nearly two decades. In the tumult of the oil price bubble and then collapse last year, the company assessed opportunities in several different areas.

"We have screened and walked away from several deals. I think it was absolutely the right thing to do."

Judgment applied by others as oil hit the US$147 mark was "questionable" in what became a highly volatile market, but "there are some others where I'd like to think it would have been nice to close them out," he says.

So, while Tui (in which NZOG has a 12.5 per cent stake) is producing ahead of expectations and Kupe (15 per cent) is due to come on stream later this year, the company is largely confined to further exploration work around Taranaki, off the Canterbury coast and in a small joint venture study of prospects in Romania. It has also spent around $30 million building a stake in Pan Pacific - a Tui-field partner with a 10 per cent stake - and has clearance to lift that. Salisbury will only say it is "happy" with its existing share.

The price collapse of oil - to just over US$30 at the beginning of the year - didn't shake out the right field bargain, so NZOG is looking at going back into debt to fund its next big investment. Salisbury is reluctant to put a top number on it but says $100 million would be a "comfortable" level of borrowing.

Another problem now is cautious lenders. "Gone are the days when you can go and secure a deal and confidently have debt funding."

But with cash still flowing in from Tui, the problems are a lot different to those Salisbury faced when he walked into the job in April 2007 from Austrian giant OMV.

Operational problems had delayed the project, staff were nervous and NZOG shareholders - who had not seen a dividend in a quarter of a century - were getting impatient.

"When you're sitting there looking at a lot of money going out the door, and you need the revenue, you become very familiar with the number of days it takes to fill a tanker and to ship the tanker, and so forth," he says.

"That was pretty exciting and tense. Then, of course, it turned very quickly, with the field being proven to be much bigger than expected and the rate of production much higher than expected - and that coincided with the spectacular rise in oil prices."

And spectacular they were. It was calculated that Tui was earning NZOG US$6 a second at peak production, even before oil prices peaked. Production rates have fallen, in line with predictions, as more water is in the mix. But as of June 30, the field had produced 9.1 million barrels for the year for the consortium, 100,000 ahead of forecast.

Production costs at Tui are exceptionally low at around US$10 a barrel, and an estimated 27 million barrels are left from existing wells, so there's still a bright future if oil prices stabilise around current levels at least.

Salisbury says there is little doubt he joined NZOG at a good time when a lot of elements were falling into place. The hard work had been done on Tui. Problem-child Pike River Coal was over the worst of its marketing delays.

"There had been a lot of hard work done before I arrived - you train to look for good opportunities. Of course there's an element of luck in that, and luck came into play with the field turning out to be bigger than we thought, and the price of oil going up."

Luck also played a role in Salisbury getting into the industry in the first place in 1990. A friend who was leaving the Fletcher Challenge subsidiary, Petrocorp, felt a little guilty about leaving his boss in the lurch and persuaded Salisbury to replace him.

"It felt like a big leap at the time but the boss [John Bay, now L&M Petroleum chief] took a punt on me."

One week he was a junior at Bell Gully, the next he was working as a business analyst in the oil industry.

"It wasn't a career path I had formed in advance, but in one criteria I did want to be a generalist."

After Petrocorp there was a brief stint as an energy consultant for Ernst & Young, then with German mining company Preussag until it was bought by OMV in 2003.

He worked in OMV's New Zealand arm for a year before moving to Vienna where he was vice-president of the giant's international business development before being lured back to NZOG to begin what has been a roller-coaster ride on the back of fluctuating oil prices.

One thing he has learned about the New Zealand market is that it is very small.

"You want to leave doors open. We play the game hard but want to treat people reasonably and be respected."

DAVID SALISBURY

* Chief executive of NZ Oil & Gas.
* Aged 41.
* Married with two children, aged 11 and 9.
* Interests: Working on a plan to take his new runabout out on a fine weekend.