Norwegian energy giant Statoil's next moves in NZ, how Norway is coping with falling prices and why oil industry skeptics say it is on the wrong track.
Norway’s Statoil is exploring for oil around New Zealand. Herald reporter
Grant Bradley headed north to find out why they’ve come all this way.
In Statoil's gleaming Oslo headquarters, scientists are studying data that will determine the Norwegian oil giant's next moves off the coast of New Zealand.
In two vast areas off the North Island, the company is looking to find what it calls high impact fields - containing 100 million barrels or more.
These are what the man heading the New Zealand push, Pal Haremo, calls "company makers", though he's quick to add that they also can change entire economies.
"What we are really looking at is maybe a billion barrel field - I think such a discovery could transform New Zealand if it is developed."
As with all oil exploration, the problem is finding it. He says that in frontier country such as around our coasts, that probability is low.
Following 18 months of desktop modelling and collecting seismic data off the New Zealand coast last summer, geologists are doing their best to pinpoint what could lie deep beneath the sea floor. And it is oil that the Norwegian company wants. Although there are much better odds of finding gas in basins around New Zealand, it doesn't deliver the same returns.
Statoil headquarters in Oslo, Norway. Photo / Grant Bradley
Haremo also says the company deliberately chose to look outside New Zealand's only oil producing province, Taranaki, because the potential there wasn't big enough.
Statoil produces 70 per cent of its output from the Norwegian continental shelf, from where it gets about 2 million barrels of oil a day.
Production started in the late 1970s and the country is not yet half way through its 5.5 billion barrels of proven oil reserves.
Statoil thinks big. It has just announced it will spend US$20 billion on a new field on the shelf that could return 3 billion barrels of oil and gas.
Haremo, a geologist by training, says that in spite of the huge proven resources on its front door step, Statoil wanted to expand globally.
In 2007 it controversially went into Alberta's tar sands, where vast amounts of energy are required to squeeze out oil, but wanted more reserves as oil topped $US100 a barrel for a prolonged period.
Statoil brand service station in Oslo, Norway.
"We had some very successful years for exploration at Statoil from 2011 to 2013 and that created a lot of enthusiasm in the company but we had a small portfolio in the Asia Pacific region so we revised our strategy. Our entry to New Zealand was a part of filling that gap," he says.
Access to large areas was key and a regulatory regime that gave companies flexibility and long duration permits were crucial.
"We are looking at areas where commercial conditions go hand in hand with good geology," says Haremo.
The company has two projects in New Zealand, one off the west coast of Northland and, in a 50/50 venture with Chevron, an area off the Wairarapa coast.
"We don't need to drill expensive deep water wells early and only have to commit to that later in the process," says Haremo.
The Reinga Basin permit is about 100km offshore from Northland. If the area is prospective and can be drilled with low risk, Statoil plans to seek regulatory approval to drill a well in 2020.
The permits are in water depths of 1200m to 3000m. Statoil says it has drilled more than 70 wells in similar depths around the world and Haremo stresses that it won't drill if the risks are too high.
"Before we take the decision whether or not to drill a well in New Zealand, we need to mitigate any risks. If we think there is high risk for pollution and the environment we will not drill in New Zealand. We think there is a good opportunity to identify the risks and mitigate them," he says.
Pal Haremo.
Norway is widely acknowledged as having the world's strictest regulations covering oil and gas and claims no spilled oil has ever washed to land. But in the early phases of its production it did suffer disasters. In 1977 an offshore platform blowout resulted in more than 200,000 barrels of oil reportedly being released into the sea, and three years later the living area of a rig collapsed, killing 123 workers.
"We can never exclude a risk but what we can say is that in the event of an accident we will take responsibility." Asked whether Statoil would have a back-up rig to drill a relief well if necessary, Haremo says planning is still in the early stages.
"We have not finalised the plans as to whether we will have two rigs. If we decided to drill we will use one to two years for planning, where these types of questions will be addressed. We will have a plan to mitigate if we have a blowout. If that rig will sit in the shores of New Zealand or somewhere else will be dependent on best practice globally and New Zealand government requirements."
Haremo says if the company does not believe rules here are tough enough, it will "fill that gap." However anti-drilling activist Mike Smith says the threat to New Zealand is not worth it.
What we are really looking at is maybe a billion barrel field - I think such a discovery could transform New Zealand if it is developed.
"Yes, they've made a lot of money and they've done well and it's benefited their society but it's now time to stop the runaway train," says the Greenpeace Aotearoa campaigner.
"New Zealand gets 100 per cent of the risk, Statoil gets the profit and the New Zealand government gets to clip the ticket on the way through."
The royalty regime does differ substantially between Norway and New Zealand. For projects in Norway, the government collects 78 per cent of revenue, while in this country the estimates of the spinoff from oil and gas production range between 40 per cent and 60 per cent.
Smith, who this year visited Norway to meet the indigenous Sami people and make a protest at Statoil's annual meeting, says the oil company would be welcome if it brought out renewable technology.
Statoil LNG plant at Hammerfest, northern Norway. Photo / Grant Bradley
"We've told them 'if you want to come here with wind generation and solar power we'd welcome you and we'd give you some of our mountain tops'." Opponents say Maori in Northland are not being consulted properly, and some meetings have been disrupted by protesters.
Haremo says Statoil is doing its best. He has been out to New Zealand six times and Statoil has a country manager stationed in this country.
"We're concentrating on five major iwi and then leave it to chairmen and iwi leaders to engage with others. We just can't have hundreds of meetings each time we have new information."
Wherever the oil industry goes, it faces protest. "We are working in some countries that are more challenging and that doesn't mean that it is easy [in New Zealand] and the opposition and the scepticism about oil in Northland is very clear to me, but I think that's partly due to little knowledge about the oil industry."
The Sami are the nomadic reindeer herders who have lived at the very north of Scandinavia for thousands of years. They have met Maori, and Statoil executives have briefed the Sami Parliament about the company's activities in New Zealand.
Reindeer wander near Hammerfest in Northern Norway. Photo / Grant Bradley
Speaking in the fine wooden parliament building at the village of Karasjok, modelled on the tipi-like structures of reindeer herders, Sami president Aili Keskitalo acknowledges the financial benefits of the oil boom but has a warning for Statoil.
"I would love Statoil to be the good guys but if they want to be the good guys they have to do it the right way. They have to let Maori people make decisions around consultation."
Greenpeace Norway watches Statoil closely and holds two shares in order to attend annual meetings. Greenpeace spokesman Martin Norman says it's not only tight regulation that keeps the company in check at home.
In the country of 5.1 million, "where everyone's related" there is strong social pressure to toe the line.
"It's a big part of the Norwegian identity and they have a strong social licence to operate," says Norman.
"We have an open society, everyone has been helping each other a lot, it's what you do to survive in this Godforsaken place," he says as bitterly cold rain pelts down outside Oslo's central railway station, where the day before a beach volleyball tournament had been held.
Norman says Statoil has hired a large team of "storytellers" to build myths based on the heroism of Norwegian Arctic explorers, and Greenpeace has published a "greenwash guide" highlighting the company's tactics.
Statoil had been well trained by the Norwegian regulations and was "probably one of the best in a class of losers" but he has fears for other countries where the company operates.
"They go in and be friendly Norwegians wanting to do good but not understanding the societies they're going into - I don't know if they think they're doing something good - it seems to have happened in Canada and seems to be happening in New Zealand."
Statoil's Haremo says he's not surprised Greenpeace takes the tack it does.
Greenpeace Norway spokesman Martin Norman.
"What I have learned about 18 months in New Zealand, is that Greenpeace has a very strong position here. They want to stop us and they will use any argument they can. We try and have a clear strategy to concentrate on ourselves and not comment on what the others do. It think the winning recipe is to be open, honest and come with the facts."
Statoil's revenue was about $140 billion last year, but like every oil and gas company it faces the squeeze as oil prices stay persistently low, relative to highs at the beginning of last year.
This year it will look for bottom line savings of $2.3 billion.
Haremo says there will be pressure on budgets if the oil price remains subdued (although he says it's still above historic averages). The New Zealand operation - now into a data analysis stage for a year or so - is in a relatively phase compared to $100 million cost of drilling a deep water exploration well.
