“Shell has no plans today to leave New Zealand; our activities here are at an all-time high,” Shell New Zealand spokeswoman Jackie Maitland said in Wellington today.
Shell was involved in the two-well Ihi program on the Maui A platform that was designed to extend the economic life of the offshore Taranaki Maui gas field, as well as working to bring the near-shore $US600 million ($A810 million) Pohokura gas-condensate project onstream by late this year, she added.
Details of the planned re-organisation emerged in High Court judge Justice John Wild’s judgment that has blocked Shell’s bid to take over operatorship of Maui, as reported in EnergyReview.net yesterday.
ERN said the High Court had stymied Shell’s plans to take over operations of Maui by upholding a Todd Energy injunction, preventing the removal of Shell Todd Oil Services as operator.
Justice Wild’s judgment reveals that Shell launched Project Moa/Zinfandel in mid-2004 with the objective to “normalise” field and project operations in New Zealand.
This meant substituting current operator STOS with a standard Shell operating company, and maximising the value of Shell’s New Zealand upstream assets “against the possibility that Shell may wish to divest one, some or all of them in the future, in particular after Pohokura gas came onstream”, said the judgment.
If Shell did not take over operating Maui, the potential “timely” sale of its New Zealand exploration and production assets could be hindered.
“If asset sales are contemplated in the future, potential buyers are likely to discount asset purchase prices to reflect the extra costs and complications of inheriting the STOS joint venture as field operator,” said one Shell letter.
The letter said the amount of any such discount was speculative, but a 10% discount in the purchase price would cause an “erosion” of more than $100 million in the value of Shell’s New Zealand portfolio.
Justice Wild said Shell’s actions were not motivated by its claimed dysfunction within STOS, as that was not indicated by the performance of STOS, but by its aim to have a 100% Shell controlled entity operating its New Zealand E&P assets.
“When Shell could not change STOS into a new operating model conforming to a standard Shell operating company, Shell embarked on its Project Moa/Zinfandel,” he said.
There was also evidence that Todd opposed the type and level of costs that STOS began incurring as the change process was implemented, costs which presumably would not have been questioned if they were incurred by a standard Shell operating company.
The main costs were Shell International EP advisory fees to STOS (which jumped 227% in 2004, and a further 44% in 2005). There were also Shell expatriate pension scheme costs and the costs of staffing levels that were higher than what Todd believed were necessary to operate the largely mature New Zealand assets.
"There is no evidence to indicate that Todd's actions in relation to STOS have been motivated by anything other than Todd's wish to minimise STOS's costs and thus maximise returns to Todd from fields and projects,” Justice Wild said.
Shell correspondence also shows its executives arguing that Todd had too much control over the provision of services to JVs for such a small equity stake in Maui.
Shell NZ owns 82.75% of Maui and 48% of Pohokura, while Todd owns 6.25% of Maui and 26% of Pohokura, with Austrian firm OMV owning 10% of Maui and 26% of Pohokura.