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Bloomberg: New Zealand’s Tui Oil Field May Set Payback Record (Update1)

By Gavin Evans

July 11 (Bloomberg) — New Zealand’s Tui oil project may set a world record for offshore fields by recouping $245 million of costs in three months, half the time for BHP Billiton Ltd.’s Shenzi venture in the U.S. Gulf, as higher prices boost returns.

Australian Worldwide Exploration Ltd.’s Tui venture will pump its first crude this month, said Bruce Phillips, managing director of the Sydney-based explorer. The payback may be twice as fast as the next-best projects monitored by energy consultants John S. Herold Inc.

BHP’s $4.4 billion Shenzi venture will be among the fastest of the world’s major new offshore projects to reach break even, Herold’s data show. Tui’s economics will be enhanced by rapid initial production of high-quality oil, rising prices and better technology.

“You’re going to see more projects like this,” said Chris Ruppel, senior geopolitical analyst at Norwalk, Connecticut-based Herold. “It’s all being driven by the oil price.”

Shares of Australian Worldwide have risen more than fourfold in the past five years as revenue has tripled. The stock today gained as much as 1.1 percent, or 4 cents, to A$3.57 and was trading at A$3.55 at 12:08 p.m. in Sydney.

Assuming an oil and gas price equivalent to $60 a barrel, a search of published project costs and output data shows the next most economic developments pay for themselves in about six months, Ruppel said. These include BHP’s Shenzi, which is due to start pumping 100,000 barrels and 50 million cubic feet of gas a day in 2009, Statoil ASA’s $4.5 billion Gjoa field off Norway’s southwest coast and the $500 million Oooguruk venture being developed by Pioneer Natural Resources Co. and Eni SpA off Alaska.

Northwest of Maui

Tui, 42.5 percent owned by Australian Worldwide and 35 percent owned by Mitsui & Co., lies in 120 meters (400 feet) of water 50 kilometers (30 miles) off the west coast of New Zealand’s North Island. It is northwest of the Maui gas field that Royal Dutch Shell Plc and its partners tapped for oil in 1996 and is the country’s first offshore development for 11 years.

Like the Maui oil project, Tui will use a production and storage vessel to lift crude from three closely placed fields, Pateke, Amokura and Tui. The oil is similar to Tapis, the world’s premier oil variety produced in Malaysia, which cost $77.46 a barrel at yesterday’s close in Singapore.

The vessel, Umuroa, will initially pump 50,000 barrels a day. At the full Tapis price, Tui would pay for itself in 64 days.

`Interesting Phenomena’

Tui “is an interesting phenomena,” said Herold’s Ruppel. “Your typical offshore projects are more in the range of 10 to 15 years” to break even because of their high cost and decline rates, he said.

While oil prices have doubled the past four years, a global shortage of engineers and equipment is now forcing up the capital cost of projects, undermining the economics of new ventures.

The Tui partners beat the worst of those cost increases by combining their design and tendering processes. Diamond Offshore Drilling Inc.’s Ocean Patriot rig was booked in mid-2005, five months before project approval was given, and standard undersea pipes and cabling equipment was picked to ensure quick supply.

Tui’s other shareholders are New Zealand Oil & Gas with 12.5 percent and Pan Pacific Petroleum Ltd. with 10 percent.

First-year production from the 27.9 million-barrel Tui field will almost double New Zealand’s oil output. By late-2008, when the OMV AG-led Maari project 65 kilometers south of Tui is due to start producing, oil and condensate production will exceed 66,000 barrels a day, beating the previous record set in 1997.

Shallow Fields

Still, Tui is small and its oil fields shallow. Within two years its flow rates are forecast to plunge to less than 10,000 barrels a day as the so-called water cut, or percentage of water in the oil increases. Over the life of the project Umuroa will handle 10 times as much water as crude.

Australian Worldwide will drill the nearby Taranui field in coming months to extend the life of the project and add as much as 15 million barrels to its reserves at lower cost, Phillips said in a June 27 interview. Cash flow from Tui will help the company drill for a potential 250 million barrels of oil in the Hector, Kopuwai and West Cape prospects in surrounding blocks in the third quarter.

“We are going to make very good profits out of the Tui,” Phillips said. “But we do want to reinvest some of those into finding more reserves.”

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

Last Updated: July 10, 2007 22:15 EDT

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