There are also rumours that Origin, as current Kupe operator, will be recommending the partners do not proceed with the development of the field if final project costs exceed $NZ1 billion ($A894.5 million).
Origin investor relations manager Angus Guthrie dismissed as “mere speculation” rumours that Origin may halt the project if already inflated development costs climb from $800 million to more than $1 billion.
“We informed the markets last October of the latest estimated project costs, which were then about NZ$800 million, and there have not been any significant movements in those tender prices since then,” he told EnergyReview.net yesterday.
“The ballpark figure of NZ$800 million remains, plus or minus 10%, and it is certainly not my understanding that development costs will be as high as NZ$1 billion,” said Guthrie.
Last October, Guthrie said the revised Kupe project costs were considerably higher than originally anticipated due to higher commodity prices, particularly for steel, and the unprecedented level of activity in the oil and gas market around the world.
Guthrie confirmed to EnergyReview.net that the Merger Implementation Agreement, put out last week as part of the proposed Contact-Origin merger, contained proposals for Origin to sell all its New Zealand businesses and assets to Contact “at an agreed valuation”.
Origin’s New Zealand exploration and production interests include Kupe, major stakes in offshore Northland licences PEP 38618 and 38619, offshore Taranaki licence PEP 38485 and offshore Canterbury permit PEP 38262. It also owns NZ liquefied petroleum gas distribution business Rockgas.
Under the merger agreement, Contact would have to buy back Origin’s 51.4% stake in Contact and transfer the corresponding amount of debt from Origin to Contact as part of that deal.
New Zealand analysts have criticised the proposed Contact-Origin merger – which would create one of Australasia’s largest integrated energy groups with a combined market capitalisation of about $A7 billion – saying it undervalues Contact and would mean Contact assuming more debt and more risk.
The proposed Origin-Contact Kupe transfer also raises questions about joint venture confidentiality and possible conflicts of interest between New Zealand’s two largest gas users – Contact and Genesis Energy, which holds the rights to most Kupe gas, including Origin’s share.
Genesis holds 31% equity in Kupe and plans to use most of its Kupe gas entitlement to fuel its 380MW e3p power station being built at Huntly. Contact is hunting for more gas so it can proceed with similar-size stations in Auckland or Taranaki.
The Dominion Post paper quotes Genesis Energy chief executive Murray Jackson as saying Genesis was having discussions with Origin regarding any Contact involvement in Kupe, but he expected Origin to continue to operate the Kupe project from Melbourne.
Kupe gas supply agreements were near to being finalised, as were final Kupe development costs, added Jackson.
