Todd Energy boss Richard Tweedie says the announcement earlier last week, that Royal Dutch Shell is suspending exploration in New Zealand, is another nail in the coffin of this country's E&P industry and could not have come at a worse time.

It also sends the wrong signals to a worldwide industry at just the time New Zealand needs more exploration than ever to ensure replacements for the fast dwindling Maui field.

"Exploration is a high risk game, particularly offshore in deepwater, and you require deep pockets, considerable patience and professional expertise. Shell brought not only dollars but a huge technical competency in exploration and production. They'll sure be missed."

Petroleum Exploration Association of New Zealand spokesman Mike Patrick says the government now needs to encourage even more investment in oil and gas exploration, by waiving petroleum royalties to enable marginally-economic fields to be brought quickly into production.

Another option would be to adjust royalties for already producing fields, to extend their life. The government's royalties and levies on oil and gas production net about $NZ130 million per year.

Leading explorationist Steve O'Connor says the timing of Shell's announcement - less than two months before bids close for five deepwater Taranaki blocks - shows something of the arrogance of the multinational.

"Here we have the one major explorer in New Zealand saying it finds nothing attractive enough to keep it here apart from Pohokura. They could have waited two months and that just shows how much they care about this country."

The deepwater Taranaki blocks, bids for which close on September 30, and the offshore part of this year's Taranaki licensing round, bids for which close a month later, are the only real opportunities this country has to make find significant discoveries to replace Maui.

However, Energy Minister Pete Hodgson appears relatively unconcerned by Shell's near departure, saying 95% of exploration done in New Zealand is being done by other companies.

He and Patrick say other explorers, particularly small to medium-sized operators, still see excellent opportunities in New Zealand.

However, this ignores the fact that such explorers will have to make 10-20 smallish onshore discoveries just to equal a single Pohokura-sized gas field and that New Zealand needs several such more possible 1tcf finds to avoid gas and electricity supply disruptions or the spectre of expensive LNG imports.

O'Connor said it was ironic that just two years after former Shell NZ chairman Ed Johnson said Shell saw great opportunities in New Zealand - even promising to make Taranaki one of the exploration capitals of the world - Shell was stopping exploring.

"Not everyone shares Shell's negativity and I believe there is now room for a new New Zealand-owned junior explorer with the technical credibility to work with those companies that will replace Shell."

It was also naïve of some regulatory authorities to think the disappearance of domestic company Fletcher Challenge Energy, through the buyout by Shell, would not have a negative effect on the local exploration scene. The Australian government, about the same time, realised an attempted takeover of Woodside Petroleum by Shell would not be in the national interest and blocked that move.