NZ petroleum players bullish

NEW Zealand is developing into an exciting petroleum province, executives with two dual-listed companies told the Excellence in Upstream Energy conference in Sydney this week.
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New Zealand Oil & Gas outlined its development and exploration plans in the semi-mature Taranaki region, while newly listed L&M Petroleum discussed its frontier plays in the country’s far south.

NZOG is set to rapidly increase its production as the offshore Taranaki Tui Area oil and Kupe gas-condensate fields come onstream, managing director David Salisbury told the conference yesterday.

He said his company, which is listed on both the Australian and New Zealand bourses, would see petroleum production increase from nothing to over 1 million barrels of oil equivalent (MMboe) in about a year.

He said NZOG had a market capitalisation of about $NZ270 million ($A239.5 million) and already had debt facilities in place for its two petroleum projects: $US40 million ($A48.5 million) for Tui and $NZ159 million for Kupe. It had also accumulated tax losses of about $NZ104 million.

In addition, NZOG also holds an almost 10% interest in fellow Tui partner, Sydney-based junior Pan Pacific Petroleum.

NZOG’s total proved and probable reserves are presently about 13.5MMboe.

Salisbury said success in NZOG’s 2007-08 exploration campaign could see initial net forecast production climbing from about 200,000boe in 2007 to over 1.5MMboe in 2011 and beyond.

Success with future new ventures could see that level of production climb even higher, Salisbury said.

NZOG’s forecast earnings before interest, taxation, depreciation and amortisation were on track to exceed $NZ70 million in 2007-08 (all from Tui), dropping to about $34 million the next year, then climbing to above $50 million by 2011-12 (from Tui and Kupe).

While Tui Area production would be negligible in the 2006-07 financial year, NZOG’s 12.5% share of production was expected to be about 1.2MMboe in 2007-08, 600,000boe a year later and about 400,000boe in 2009-2010. This would taper off to about 200,000boe in 2012-13.

Initial production from the Tui, Amokura and Pateke oil pools, of up to 50,000 barrels of oil per day, is scheduled to start from late June. The pools hold an estimated 27.9MMbbl of recoverable oil.

Salisbury said Kupe, which is expected to come onstream in mid-2009, would be a more constant contributor – with NZOG’s 15% share of condensate and sales gas production amounting to about 850,000boe for each of at least the first four years of field life.

Total NZOG 2P Kupe reserves were estimated to be about 10MMboe.

Total field production – of up to 70 terajoules per day of gas production, 5271bbl of condensate per day and 2.5 tonnes of liquefied petroleum gas per day – was scheduled to last to at least 2025.

Salisbury said NZOG’s 2007-08 exploration campaign had considerable upside potential.

The Tui partners were soon to decide whether to sidetrack the Tieke-1 near-field appraisal well that they drilled and suspended late last year after encountering oil and gas shows.

They will also drill the Hector-1 wildcat well in nearby licence PEP 38483 later this year.

The drilling of Hector South, a mature drillable prospect, depended on the outcome of Hector, which had estimated recoverable reserves of 60MMbbl.

Another Tui near-field well, Taranui-1, with estimated recoverable reserves of about 15MMbbl of oil, was scheduled to be drilled in mid-2007.

Salisbury added that the Momoho (formerly Stent) prospect, in the Kupe licence was scheduled to be drilled during 2008. In addition, up to three wells could be drilled in the nearby Denby prospect.

Other exploration possibilities included the Kupe South-4 well, which flowed about 10 million cubic feet per day of gas from the Farewell Formation during testing about 20 years ago; Kupe South-5, which flowed about 2300bopd of oil from the Puponga Formation; and the more northern Toru gas discovery well in the Farewell formation that has not been tested.

Meanwhile, L&M Petroleum managing director John Bay told the conference this morning that he was pleased with his company’s progress since it listed on the ASX and NZX in January.

L&M holds interests in three southwest New Zealand permits – two in onshore Southland and one in the offshore Solander Basin west of Stewart Island.

These areas have had very little exploration but L&M has reprocessed old seismic data and acquired new seismic and geological studies.

“While failing to find commercial quantities of oil or gas, the exploratory data acquired through this work has demonstrated that the basins have all the elements of a petroleum province,” the company said.

“L&M management believes that commercialisation of discoveries in western Southland, will be possible in relatively short time spans.

“L&M plans to pursue an aggressive exploration program over the next two years to assess the potential of the region.”

L&M is particularly bullish on the potential of the offshore Solander Basin.

The company has identified five prospects and numerous leads, including three prospects with potential recoverable reserves of more than 100MMbbl of oil.

It hopes to farm-out permits at part of its 100% stake in the Solander licence PEP 38228 within the next three months.

It plans to drill up to four wells in partnership with government-owned Mighty River Power in its Waiau Basin block, PEP 38226, which will target over 269MMbbl of potential oil and 194 billion cubic feet of potential gas.

Bay said he was not disheartened by the plugging and abandonment last week of the company’s first well since listing – the onshore Eastern Bush-1 wildcat.

L&M halted Eastern Bush-1 at a depth of 1780m after log analysis indicated insufficient hydrocarbons to warrant continuing the well to basement.

Bay also said he was not yet prepared to consider the nearby Sharpridge Creek exploration as unsuccessful.

Though L&M also plugged and abandoned Sharpridge Creek-2 earlier last week, that was essentially because a sidetrack from the same wellbore was impossible, given the very shallow nature of the well.

Sharpridge-2 was abandoned at a depth of 321m, when the well encountered basement some 130m higher than prognosed.

L&M had now spudded Sharpridge Creek-3, about 190m west, as that “sidetrack”.

The firm is now moving to drill the third well in its 2007-08 exploration program, Dean-1, also within PEP 38226.

Bay also said he was not worried about the recent slump in L&M’s share price on both the Australian and New Zealand bourses.

L&M shares have been as high as A23c on the ASX but now were only about 15c. They briefly spiked as high as NZ37c on the NZX but now were as low as 18c.

“As a speculative exploration-based company, we expect a lot of volatility with every announcement, whether a new well spudding or the results of any drilling, positive or negative,” Bay said.

“Our job is to manage our shareholders’ money to invest in the prospects most likely to get us the best results. As long as we do that, the share price will ultimately take care of itself.”

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