Drilling advances

In the late 1800s, the Taranaki Provincial Government of New Zealand’s North Island sent out a call for drillers, offering a £400 bounty for “the discovery of a spring of petroleum sufficiently copious to be profitably worked.”

Flash forward and you find New Zealand still making a fervent pitch for rigs to come on down. Though not specifically handing out checks, the government is offering attractive royalty rates, largely unexplored offshore and onshore prospects, and a permitting bureaucracy that is more than eager to keep the welcome mat open. New Zealand also proffers carrots that, according to The Wall Street Journal, are increasingly more alluring to international operators nowadays: Political stability and security.

Gargantuan reserve bases notwithstanding, operators are starting to take a second look at heaping more investment into some lesser developed nations and others fraught with friction (to put it mildly) where returns can be less than predictable. The WSJ on July 28 cited Shell, ExxonMobil and Chevron among the operators growing progressively weary of the political instabilities and security problems of some developing theaters that continue to put their people, rigs, infrastructure and profits in harm’s way.

That leaves nations like New Zealand, which have long sat on the petroleum sidelines, but more recently have taken to the global soapbox in hopes of luring major players with come-hither enticements. Despite its remoteness, high costs and the occasional environmental dust-up, New Zealand is promoting itself as a secure location, with plenty of untouched hunting grounds to explore. Of the estimated 18 prospective basins identified, only the Taranaki basin off the west coast, home of Shell Todd Oil Services’ seemingly ageless Maui gas field, has yielded production.

In early 2013, the U.S. Geological Survey (USGS), as part of the World Energy Resources Project, assessed the remaining potential for the west coast Taranaki basin, including its deepwater extension, and the nearby Wanganui basin. The USGS reserve assessment estimates those two basins, alone; hold 487 MMbbl of undiscovered, technically recoverable oil, 9.8 Tcf of gas and 408 MMbbl of gas liquids. To the east, New Zealand Energy Corp. says it has identified two promising unconventional prospects in the Whangai and Waipawa shales, which it describes as widespread and “extremely thick.”

Meanwhile, in anticipation of unconventional drilling getting off the starting blocks, Energy and Resources Minister Simon Bridges, and his environmental counterpart, in early June released the long-awaited “Guidelines for Managing Environmental Effects of Onshore Petroleum Development Activities (including Hydraulic Fracturing).”

 “The environmental risks of onshore petroleum development, including hydraulic fracturing, can be effectively managed, if best practice is followed,” Environment Minister Amy Adams said in a statement. “These guidelines provide clear direction, so that hydraulic fracturing is carried out in a robust, controlled and well-regulated manner. These guidelines provide support to ensure that hydraulic fracturing is managed in a sound and responsible way.”

Tricky drilling. Illustrating its driller-friendly bent, New Zealand went so far as to fund a sweeping seismic survey in 2008, and the recently revamped regulatory regime obviously favors the industry, considering that the anti-drilling crowd sees it as far too lax. The government even pushed through legislation making it a criminal offense to interfere with drilling operations, reportedly in response to Greenpeace activists’ disruption of a floater working in the deepwater Taranaki.

This year, five offshore and three onshore basins were earmarked for leasing, covering nearly 270,000 mi²—more than double the total area offered in last year’s offering, said Bridges, who crisscrosses the world these days as the nation’s most ardent petroleum promoter.

However, is certainly no walk in the park, as I was told during an early 2008 visit to New Plymouth. In the Taranaki basin, coal seams, volcanic activity and highly compartmentalized reservoirs make for enormously tough and expensive drilling and, as I was told at the time, sidetracks are an all-too-common occurrence, once the bit hits the limestone formations around 13,120 ft. Things do not get much easier in the east, where highly pressurized formations can require up to 18 lb/gal mud density.

Nevertheless, if the government estimates are close to the mark, operators are expected to spend $2.5 billion this year on drilling, even though the most recent Baker Hughes tally shows only two active offshore rigs—up one from last year—with an equal number running onshore. If the 2014 expenditure estimate is correct, it would represent a $1-billion increase over what was spent last year, Bridges told the New Zealand Herald on July 29. He cited that figure in defending his agency’s $200,000 annual promotional budget, used to encourage international players to give the country a look-see. “The proof is in the pudding. Here, in the last couple of years, we’ve had $1.3 billion in 2012, and $1.5 billion last year, spent on exploration, which will yield dividends for New Zealand,” he told the newspaper.

While difficult geology and tremendously expensive wells are definitely turn-offs for some operators, others see the security and stability of an essentially unexplored region, where the peace sign could serve as the national symbol, as trumping the drawbacks. Shell, which has a long-established presence in the country, falls squarely in that camp. Its New Zealand chairman, Bob Jager, told the WSJ on July 28, that the revamped regulatory environment, alone, makes it “one of the better countries to invest in.”