New Zealand Oil & Gas considers onshore drilling

Recent successes in onshore oil exploration are pushing New Zealand Oil & Gas to assess bidding for exploration blocks or farm-ins with existing players in its quest for a more diverse earnings stream than its traditional reliance on offshore Taranaki oil and gas plays.

Chief executive Andrew Knight stopped short of criticising the company's previous management for abandoning onshore opportunities about a decade ago, but said a local onshore component in the NZOG portfolio could "provide some of that balance" which the company required.

Its tendency in recent years had been to focus on local offshore opportunities, which required occasional, but substantial bursts of capital expenditure, which gave NZOG a "potentially lumpy investment profile", Knight told a briefing on the company's earnings for the year to June 30.

The company posted a full-year profit of $19.9 million as it puts behind it the disastrous foray into the Pike River coal project that saw it plunge to a $76.5 million loss the previous year.

Knight indicated onshore plays were among between six and 12 bids NZOG is mulling as it prepares to participate in the government's mid-October auction of exploration licence blocks.

To date, its diversification strategy has seen it pursue onshore opportunities in Sumatra, Indonesia, and offshore plays in the Mediterranean Sea off the coast of Tunisia.

Onshore production tended to be "much smaller" than NZOG's usual activities and "would be a very different profile for NZOG", said Knight, who confirmed that unconventional shale options were among those under consideration, although the company would require experienced partners to pursue them.

While there were unconventional onshore opportunities on the East Coast of the North Island, much of that territory was already sewn up and remaining opportunities appeared fragmented, he said.

While natural gas prices have been falling, they were not a deterrent to oil exploration at current prices, and the re-emergence of Methanex as a "swing" consumer of excess gas would underpin the local gas market.

"Oil at US$100 a barrel makes gas at NZ$5 [a Gigajoule] a bit easier," said Knight, who suggested that figure reflected gas costs to Methanex rather than other industrial users, such as electricity generators, who would be paying more.

The company booked an average of US$115 per barrel of oil last year on the 966,000 barrels of oil it took from the Kupe and Tui oil fields last year, compared with US$96 a barrel the year before.

NZOG is considering a $50 million to $60 million drilling programme of up to three wells to accelerate production at Tui, with decisions close.

Knight expected recent extension of reserves at the Kupe field meant it was likely to continue producing for another 20 years.

Shares closed down 0.5c yesterday at 83.5c.