Kupe development costs rise for NZOG

Wednesday 28th October 2009

Development costs on the Kupe gas field have risen, with New Zealand Oil and Gas's share of costs creasing by up to $20 million, managing director David Salisbury told shareholders today.

"NZOG has contributed $180 million to date, and our final bill appears likely to be in the range of $195 million to $200 million," Salisbury said.

With the production station near Hawera now completed and handed off to the operator, Kupe was in a commissioning period, with pipeline gas to be introduced to the station next week and full production using gas from the offshore production platform to be introduced in following weeks.

"At the completion of the commissioning period, Kupe will go into permanent production", yielding a solid income stream over the next 15 years, said Salisbury in notes for the company's annual meeting in Wellington.

While development costs were higher, so too were the expected recoverable reserves from Kupe, although no detail was offered on the extent of the expected additional resource.

NZOG's share price had risen 0.6% to $1.72 by mid-morning, an increase of 35% in the year to date.

While the company would have liked to have seen returns before now from its 30% shareholding in Pike River Coal, a ventilation shaft collapse and subsequent production problems had delayed its development, with first coal shipments now scheduled for the first quarter of 2010.

"It is in the nature of the mining business that there are surprises and obstacles to overcome," Salisbury said. "Pike has proven itself to be competent at addressing the obstacles and we remain confident of the mine's future."

Salisbury outlined again the company's summer drilling campaign, confirming that the Kan Tan IV drilling rig would now not arrive in New Zealand waters until early 2010, at which point it will undertake exploration drilling in the Hoki prospect, offshore Taranaki, followed by fresh drilling in the Tui licence area in the hope of finding easily tapped additional resource from the field.

"Any commercial discovery could potentially be brought into production within 18 months," Salisbury said.

The company also continued low-cost evaluation of prospects in Romania, with the potential to lodge bids for exploration licences in mid-2010.

Outlining the company's approach to new investments outside New Zealand, Salisbury said NZOG was "focused on one creating or two new core areas, as opposed to a wide geographic spread of interests" with an emphasis on "near term payback as opposed to long term horizons".

The company was not interested in stranded gas assets, and was looking for "oil, condensate and gas in proven basins, with existing open access infrastructure, ready access to product markets at transparent prices, with scope to grow, healthy financial returns, manageable risks, and fiscal and political stability".

NZOG would be an active rather than a passive joint venture partner.

While the company had added $120 millioin of new and existing ventures in the last year, including its 15% stake in the "under-valued" Pan Pacific Petroleum, there had been fewer "fire sales" generated by the global credit crunch that might have been expected.

A variety of possible transactions were active consideration at present, Salisbury said.

Businesswire.co.nz

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