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Bloomberg: Shell, Exxon May Drill Off New Zealand in World’s Highest Waves

July 31 (Bloomberg) — Energy prices have risen so high that New Zealand is inviting Royal Dutch Shell Plc, Exxon Mobil Corp. and other natural gas producers to send rigs to one of the most inhospitable seas on Earth.

Next month, New Zealand will seek bids to explore in the Great South Basin, off the nation’s southern coast. The area was last explored during the oil shocks of the 1970s, when drillers found the cost of battling 15-meter (50-foot) waves too high to merit exploiting the area’s gas fields.

“We were just shut down for weeks on end,” said Trevor Christie, 55, who worked on a rig in the region during the 1970s. “You just closed up everything. We were forbidden from walking across the heli-deck — you’d just get blown away.”

Now, as record oil prices push countries to use more gas, explorers such as Shell are venturing into deeper waters and more remote locations to find new supplies. At stake below the seas south of New Zealand are fields that may contain as much as 7 trillion cubic feet of gas. That’s enough to supply the U.K for two years, according to the earlier tests.

“The easy oil and gas has been found,” said Tony Regan, lead consultant with Singapore-based Tri-Zen International Pte, which has advised clients including Shell and BP Plc. “All the oil companies are well aware that they’ve got to look further afield, at deeper water, tougher areas.”

Screaming Sixties

Oil companies are being offered the chance to explore 140,000 square miles (362,000 square kilometers) of ocean off New Zealand’s South Island, in the so-called “Furious 50s” and “Screaming 60s.” Those latitudes are renowned among sailors for the prevailing westerly winds that circle the globe.

“That’s where some of the consistently highest waves in the world come from,” said Richard Gorman, a scientist at the National Institute of Water and Atmospheric Research in Hamilton, New Zealand.

Winds in the region peak at more than 150 kilometers an hour and exceed 36 kilometers about 40 percent of the time, according to the institute. In some areas, production vessels may spend as much as 30 percent of a year idle.

New Zealand’s Crown Minerals department is offering 40 permits covering 9,000 square kilometers each. Some extend as far as 500 kilometers south of the country’s mainland.

Still, the rewards could be high. Eight exploration wells were drilled in the basin between 1976 and 1985, at water depths of 60 meters to 880 meters. Three showed gas and light oil. Prices then were too low to warrant development.

Export Potential

One well, Toroa, drilled by Hunt International Petroleum in 1977, may have tapped a field holding more than a billion barrels of oil and seven trillion cubic feet of gas, according to Magellan Petroleum Corp., which held a license over the area until 2005.

New Zealand has gotten most of its gas from the 27-year-old Maui field. Lying in 110 meters of water, 35 kilometers off the western coast of the country’s more temperate North Island, the field contains an estimated 3.4 trillion cubic feet of gas.

New Zealand uses about 160 billion cubic feet of gas a year. A large find would probably be exported as liquefied natural gas to avoid swamping the domestic gas market. A smaller near-shore find could supply Dunedin and Invercargill, the nation’s southern-most cities.

“We will have a look at what’s being offered,” Shell New Zealand Ltd. spokeswoman Jackie Maitland said. “We look forward to seeing what the government puts up.”

Arctic Drilling

Shell, Europe’s No. 2 oil company, is exploring in harsher climates as prices above $70 a barrel attract companies to fields for the first time since the oil shocks of the 1970s. The Hague-based producer is leading a $20 billion project to get oil from Russia’s ice-bound Sakhalin island. The U.K.’s BG Group Plc plans to drill in Norwegian waters in the Arctic Circle.

Exxon Mobil, the world’s largest publicly traded oil company, has expressed an interest in the area and is waiting for details before deciding whether to participate, said Peter Thornbury, a Wellington, New Zealand spokesman. The Irving, Texas-based company last year bought seismic data over part of the basin.

Shell is the biggest gas producer in New Zealand. OMV AG, central Europe’s biggest oil company and a partner in Shell’s Maui and Pohokura gas fields, said in March it viewed the Great South Basin as an opportunity to keep New Zealand among its core producing areas.

“Our position hasn’t changed,” OMV New Zealand Ltd. Managing Director Stephen Hounsell said. “We really want to get the thing sorted out in terms of start and finish dates and what’s going to be involved.”

Final Terms

New Zealand’s Crown Minerals department is completing the final terms of the offer for an announcement early August, Group Manager Adam Feeley said. A mid-March closing date will give successful bidders enough time to prepare work for the 2007-2008 summer, he said.

“People who are currently not in New Zealand have flown from all over the world to come and talk to us,” he said, declining to name interested oil companies.

Chevron Corp.’s Perth-based spokesman Scott Walker, Ernie Delfos, Australian exploration manager at Italy’s Eni Spa, and Total SA’s Paris-based spokeswoman Patricia Marie all declined to comment on whether their companies will bid. All three are looking for gas off the coast of nearby Australia.

Modern rigs will easily cope with the water depths in the Great South Basin, where there is a “plausible opportunity” for a big find, said Mac Beggs, managing director of consulting firm Geosphere Ltd. in Lower Hutt, New Zealand.

“It’s still not without a number of challenges,” said Beggs, a 25-year industry veteran who was head of the hydrocarbons group at New Zealand’s Institute of Geological & Nuclear Sciences. “The sea conditions and the weather conditions are as bad as anywhere on the planet.”

To contact the reporter on this story:
Gavin Evans in Wellington at  [email protected]

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