NZ Oil & Gas (NZO)

[Waikaka]

Thought I should follow up on Tawhaki-1 that is currently being drilled down south.

NZOG has been applying for extensions on their permit obligations based on the geological de-risking that will occur if Tawhaki-1 discovers something. This is fair enough in my opinion and the least the govt should do after doing the dirty on NZ exploration.

Tawhaki stats are:

470 km2 structural trap, with 300m thick reservoir section.
Estimated cost is a bit less than $100 million, water depth ~1300m,
Gross mean recoverable oil 1 Bbbl. They have an oil AVO response so suspect they are desperately hoping they don’t find gas. Their commercial cut off is about 250 mmbbl

Suspect we should get the results in February.

Why does Tawhaki-1 matter to NZOG. While wells in Canterbury/GSB have a pretty high success rate with decent flows (from memory 4 from 12 wells had flows to surface) the basins are relatively shallow and may lack maturity, there are some thoughts that as many of the structures are inversion and formed later than the main charge event they may have been under filled. Barque and Toroa are pretty much self sourcing from nearby but require charge at the right time. A fully charged structure at Tawhaki-1 would significantly derisk sub basins to the north and south.

I think Tawhaki-1 is a free carry for NZOG. Both permits will be in hot acerage if OMV find anything.

Now in saying that Barque is a pretty average prospect. First identified in follow up work to BP, Shell, Todd drilling of Clipper-1 in the mid 80's it is likely to have a volcanic intrusion associated with the structure and therefore significant risks of elevated Co2 and reservoir alteration. It is near or on the shelf break and 40-50km from the coast. It will need to find formidable volumes to be anywhere near commercial.

Remember the history of the prospect:

I got lost trying to work it out but in the last 35 years of us knowing Barque the following companies have looked over Canterbury and decided not to drill Barque

SBPT (mid 80's)
Pacrim (1998)
Origin (Mid 2000's)
AWE (2010's)
Anadarko (2010's)
Tap Oil (mid 2000's)
Austral Pacific (mid 2000's)
Anschutz (2000)
Maxus Energy Corp (1991)

Lots of these companies even held the acreage that Barque was under and still decided not to drill. In a success at Tawhaki-1 exploration will likely move south not north to Barque and I am pretty confident that if Tawhaki-1 fails NZOG will never farm out Toroa and Barque.

I love a good drill an thrill but my experience tells me there is no margin of safety in the often zero sum game of exploration. I have run the figures and think anything under 60c I will start buying.

Hope something there may be helpful.

[Waikaka]

Fish, experts assess that currently New Zealand has five or six years gas supply left. That makes the discovery of, and production from, new gas fields quite urgent. Part of that problem is that NZOG & Beach need to find a third JV partner, and OGOG haven't been able to assist as the majors are shrinking their geographical areas of operation away from pioneer exploration.

We have a lot more than 5-6 years gas left. That is about how much 'cheap' gas left. Methanex uses maybe 40% of all gas produced in NZ. Price increases enough and they switch off and bang now we have 15 years supply.

It is actually great news for Kupe, they have been stripping liquids which has dominated revenue. Hopefully late in field life they will get some decent money for the gas as well.

Gas prices are already increasing and the spot market is tightening. I understand Contact has struggled to get all the gas they want for TCC. Pohokura outages are spiking electricity prices. Very little flexibility on the system and it will only get worse.

[fish]

We have a lot more than 5-6 years gas left. That is about how much 'cheap' gas left. Methanex uses maybe 40% of all gas produced in NZ. Price increases enough and they switch off and bang now we have 15 years supply.

It is actually great news for Kupe, they have been stripping liquids which has dominated revenue. Hopefully late in field life they will get some decent money for the gas as well.

Gas prices are already increasing and the spot market is tightening. I understand Contact has struggled to get all the gas they want for TCC. Pohokura outages are spiking electricity prices. Very little flexibility on the system and it will only get worse.

Thanks Waikaka for the last 2 informative posts.
Its good to hear that methanex will stop using our gas if prices increase.And futures for gas are nearly doubling in the next 10 years
To stop burning coal for electricity we need to use our gas here.
Have you seen the economic study funded partly by NZ trade and Industry for Barque?

[mistaTea]

I love a good drill an thrill but my experience tells me there is no margin of safety in the often zero sum game of exploration. I have run the figures and think anything under 60c I will start buying.

Great comments Waikaka, thank you for sharing. We will all be watching with interest to see how OMV get on. If OMV don't find anything that would almost certainly be the end of the story so far as Barque and Toroa are concerned - it would be interesting to see how philosophical the curreny government is if a bunch of high potential permits are handed back!

For me your last comment is key from an investor perspective. Drilling is high risk - high reward. Though the results of drilling are largely binary - you either find commercially viable amounts of hydrocarbons or you don't - from a pure probability perspective Ironbark is unlikely to succeed. Barque is unlikely to succeed. Toroa is unlikely to succeed. Even if each of the permits had a whopping 30% chance of commercial success, that is still a 70% chance of failure for each one.

I am not really thinking too much about the GSB right now. It is all about Ironbark for me. And the average price I paid minus dividends received means that I am 'on the table' at such a low price that I almost can't lose. Ironbark is almost a freebie.

Either Ironbark will make me very rich, or not and I will leave with 90 - 95% of the capital I invested by my reckoning.

Heads I win - tails I don't lose - much!

[fish]

Great comments Waikaka, thank you for sharing. We will all be watching with interest to see how OMV get on. If OMV don't find anything that would almost certainly be the end of the story so far as Barque and Toroa are concerned - it would be interesting to see how philosophical the curreny government is if a bunch of high potential permits are handed back!

For me your last comment is key from an investor perspective. Drilling is high risk - high reward. Though the results of drilling are largely binary - you either find commercially viable amounts of hydrocarbons or you don't - from a pure probability perspective Ironbark is unlikely to succeed. Barque is unlikely to succeed. Toroa is unlikely to succeed. Even if each of the permits had a whopping 30% chance of commercial success, that is still a 70% chance of failure for each one.

I am not really thinking too much about the GSB right now. It is all about Ironbark for me. And the average price I paid minus dividends received means that I am 'on the table' at such a low price that I almost can't lose. Ironbark is almost a freebie.

Either Ironbark will make me very rich, or not and I will leave with 90 - 95% of the capital I invested by my reckoning.

Heads I win - tails I don't lose - much!

If sucessful Ironbark will be worth Trillions .A mere 50million for nzo to drill barque is peanuts in comparison .Regardless of omv success/Ironbark I feel NZ needs Barque to be drilled to give us a chance of energy independence for the rest of this century .I feel Barque will be much riskier than Ironbark with BP and Beach very optimistic and successful

[Waikaka]

Thanks Waikaka for the last 2 informative posts.
Its good to hear that methanex will stop using our gas if prices increase.And futures for gas are nearly doubling in the next 10 years
To stop burning coal for electricity we need to use our gas here.
Have you seen the economic study funded partly by NZ trade and Industry for Barque?

I am not an engineer or a economist so cant really helpfully comment on the report.

What I can say is that Maui was a bit over 4Tcf, shallower water than Barque, closer to markets, better met ocean conditions and to get that developed the govt needed to:
NGC contracted the gas with a guaranteed take or pay
MWD built the Maui pipeline
NZED built the thermal plants to help with demand (Stratford and Huntly)
Think big built Motinui (synfuels) and methanol plant at Waitara as well as ammonia/urea at Kapuni to help with demand

and the biggest of all Petrocorp stepped in for 50% of Maui.

All of that was needed to convince SBPT to even develop Maui. All developments since then have leveraged off existing infrastructure.

What I want to reiterate by talking about Maui development is that it is easy to forget the huge amount of govt help that was needed to get a isolated major gas condensate field like Maui developed.

Can you see the govt taking a similar hands-on role in the future?

If not it is likely any discovery will be stranded for the foreseeable. I suspect that is why OMV is hoping for oil, FPSO development off shore will be far cheaper, easier to FID and simpler to consent than doing a gas development.

[fish]

I am not an engineer or a economist so cant really helpfully comment on the report.

What I can say is that Maui was a bit over 4Tcf, shallower water than Barque, closer to markets, better met ocean conditions and to get that developed the govt needed to:
NGC contracted the gas with a guaranteed take or pay
MWD built the Maui pipeline
NZED built the thermal plants to help with demand (Stratford and Huntly)
Think big built Motinui (synfuels) and methanol plant at Waitara as well as ammonia/urea at Kapuni to help with demand

and the biggest of all Petrocorp stepped in for 50% of Maui.

All of that was needed to convince SBPT to even develop Maui. All developments since then have leveraged off existing infrastructure.

What I want to reiterate by talking about Maui development is that it is easy to forget the huge amount of govt help that was needed to get a isolated major gas condensate field like Maui developed.

Can you see the govt taking a similar hands-on role in the future?

If not it is likely any discovery will be stranded for the foreseeable. I suspect that is why OMV is hoping for oil, FPSO development off shore will be far cheaper, easier to FID and simpler to consent than doing a gas development.

Fully agree and with production anticipated to start 2025 there are 2 choices and pipeline would be so problematic-you also need consents and possible may get Greenpeace opposition
FPSO is the way to go.
OGOG have what it takes to do this-and it may even have been a reason for buying into NZO.
I guess as they only have a 70% shareholding they will have to put the contract to rent the FPSO out for tender unless they sometime in the next 4 years if they make another takeover offer.
If ironbark is successful they could never succeed with such an offer.
If Ironbark is unsuccessful they may have to liquidate the company and hope to buy the parts of NZO they want or make another takeover offer-but will the minority share holders sell after the last offer was not fair and reasonable and involved stating Ironbark has only a one in twenty chance of commercial success ?

[Wiremu]

Relevant to the current thread on the need for FPSOs, pipelines, and consenting is the article entitled "Why Global LNG Growth Needs Both Floating Liquefaction and Regas Platforms" in the Mitsubishi Oil & Gas website at https://oilandgas.mhi.com/ The stories section is also interesting.

And for a global overview on energy going forward: https://www.mckinsey.com/industries/...rspective-2019

[fish]

Relevant to the current thread on the need for FPSOs, pipelines, and consenting is the article entitled "Why Global LNG Growth Needs Both Floating Liquefaction and Regas Platforms" in the Mitsubishi Oil & Gas website at https://oilandgas.mhi.com/ The stories section is also interesting.

And for a global overview on energy going forward: https://www.mckinsey.com/industries/...rspective-2019

Informative post Wiremu.
I had never heard of Regas platforms and they clearly have a role to play in ensuring security of energy supply in the future.
We need OGOG and they need us so we have to find a way to work together

[mistaTea]

https://www.nzx.com/announcements/348111

Contact secures their gas supply from OMV out to 2025.

Their statement highlights the need for NZ to discover more gas to secure a reliable and affordable energy source as cleaner alternative given the intermittent nature of hydro and wind.