Untapped potential is huge

The Maari field is one of the three biggest off the coast of Taranaki. Photo / Supplied

In the high-stakes game of oil exploration New Zealand is frontier country.

With the fourth biggest exclusive economic zone in the world and 15 basins that could produce hydrocarbons, the potential is enormous but just one basin - Taranaki - has producing fields.

The province's offshore and onshore wells produce more than 20 million barrels a year but that's less than a quarter of what the world uses a day. New Zealand production is a drop in the bucket compared to what we need and to attract big explorers in large numbers. And although the associated gas is a big part of our energy mix, nearly all of the oil goes overseas for refining and as with other traded commodities we end up paying world prices - plus tax - for what is refined here and what we import.

A big find is not going to change that, unless we take the Venezuelan approach of practically giving oil back to citizens. Barring revolution that's not going to happen.

The big benefit from oil and gas is royalties and tax and the economic spinoff which is estimated at $2.5 billion a year.

In the 2009/10 financial year, the Government collected $450 million in royalties alone and by putting its weight behind the industry, is chasing more. A Government-ordered review of rules covering exploration is under way in the shape of the Petroleum Action plan. But the results of drilling over the past 18 months have not been encouraging, a series of wells drilled off Taranaki and further north have shown nothing immediately promising.

While the big offshore Taranaki fields Tui, Maari and Kupe are producing, drilling in the region during the past four years has produced close to 20 dry wells. Right now Shell Todd Oil Services is drilling near the giant Maui gas field and in other, deeper, potentially larger offshore prospects, surveys of undersea basins are under way.

Houston-based Anadarko is working off the Canterbury coast with the aim of drilling as early as next summer, while off East Cape Petrobras, the giant Brazilian state-owned oil company, will begin its exploration programme this year.

Drilling a "wildcat" well in unproven areas where chances of success are 10 per cent or less is stacked up against the massive cost of drilling - $100 million a well or more in deep water. The industry suffered a blow last year when giant Exxon-Mobil gave up on the Great South Basin.

Although New Zealand was named as the 18th most attractive petroleum jurisdiction in the world big players still tend to favour drilling where there are proven large reserves - even if it does mean wearing a flak jacket to work.

Crown Minerals provides geotechnical data to prospective explorers and administers permits. Its petroleum manager Kevin Rolens said that besides Shell's drilling at Ruru, this year is more about acquiring data. Exploration here needs a stroke of good fortune and a large one.

"You need a lot of luck, you need to be flexible and you have to come and do the heavy lifting," he said.

Shell Todd's general manager Rob Jager said its drill ship operation off Taranaki had been affected by bad weather.

"It's progressing but it's showing up some challenges - every well does."

Drilling in water 4000m deep would take another one or two months. New Zealand is under-explored partly because the enormous cost of relocating rigs, he said.

"New Zealand's got some great advantages - it's a great place to do business but on the other hand there's the tyranny of distance and New Zealand tends to be more gas prone than oil prone and it tends to be smaller rather than bigger."

New Zealand's small domestic market for gas is also a deterrent, although prospects for exporting gas are improving.

The Petroleum Exploration and Production Association executive officer John Pfahlert said the risk and reward calculation is why companies stay in dangerous places such as Libya and Nigeria rather than drilling in New Zealand.

"The situation will change when and if we get a really big discovery. As people keep reminding me every new discovery was in a frontier province at one stage."

NZ oil production

* 18 fields in production (2009)
* 20 million barrels a year
* 17.9 million barrels exported
* 1.7 million barrels refined here

grant.bradley@nzherald.co.nz