A high-powered energy consortium has committed to a $200 million exploration project in the Great South Basin, confident of a gas strike bigger than the Maui field.
Dutch-headquartered Shell, Austrian giant OMV and Japan's Mitsui have combined forces to commit to a "drill or drop" option to drill a well in an exploration permit. Now the commitment has been made, the project's operating company, Shell New Zealand, will begin planning and preparations for the drilling programme, which is likely to take place during the summer of 2016-2017.
Shell New Zealand's country chairman Rob Jager said yesterday experts were predicting a 30 per cent chance of a commercial discovery - and that there was a better than 99 per cent chance the find would be natural gas.
"Personally I'm very excited about it," he said. "The best thing is that after studying all the information about this prospect, the joint venture companies have been sufficiently attracted to invest up to $200 million to drill an exploratory well.
"That's great for New Zealand. Shell, for instance, can choose to drill in many places throughout the world - but it has found the Great South Basin sufficiently attractive to rank the area high up in its exploration portfolio, and commit the money."
The New Zealand Petroleum, Exploration and Production Association welcomed the announcement.
"Unlocking the petroleum potential of the Great South Basin could provide real benefits not only to local communities, but to the country as a whole," chief executive David Robinson said.
"Even though it takes approximately 10 years to fully develop a producing well, a decision to drill is the first step in ensuring benefits will flow locally and nationally and that is good news for Kiwis everywhere."
The joint venture's decision to drill the well came after analysing more than 25,000 square kilo metres of seismic survey information gathered over the licence area, Jager said.
Work would now begin on developing the necessary drilling programme and on securing a suitable rig for the job. It would need to be a large one capable of drilling in 1350m water depths in notoriously turbulent conditions off the bottom of the South Island's east coast, he said.
Jager said to be commercially viable, the gas strike would need to be at least the size of the Maui gasfield off Taranaki, which when found was rated at containing 3.5 trillion cubic feet of natural gas.
"So we need to be thinking bigger than Maui," he said. "Maui was drilled in 100 metres of water 35 kilometres off the coast - this well will be drilled in 1350 metres of water 150 kilometres off the coast, and it will be a long way from potential markets. So to be commercially successful it would have to be of a good size."
DECISION WELCOMED IN SOUTH
The move has been welcomed by Southland leaders, although they acknowledge any significant economic benefits to the province will be years away.
The Southland Chamber of Commerce has called on the region's councils and business leaders to be proactive about enticing Shell to establish an operational base at Bluff. Shell has yet to decide whether it will base its operations in Dunedin or Bluff.
Environmentalists have repeatedly expressed concerns about the proposal, pointing to the risks associated with drilling at depth in such unpredictable conditions.
Southland leaders have welcomed Shell New Zealand's decision to drill for gas in the Great South Basin but say it is too early to celebrate.
The timing of the drilling programme will be decided after detailed planning but was expected to start in summer 2016.
Jager said it had not yet been decided if operations would be based from Bluff or Dunedin.
Invercargill Mayor Tim Shadbolt was optimistic and said the news was absolutely fantastic and a great way to start the new year.
"I know it's a long way off before we know if anything major will happen but this news is a real boost for the south and for business confidence," he said.
He hoped the safe drilling operations off Taranaki would alleviate any fears of something going wrong.
South Port chief executive Mark O'Connor, who is also chairman of the Southland Energy Consortium, said the decision had the potential to be the most significant development for Southland in several decades.
If significant gas was found it could be a catalyst for further exploration by other international parties.
South Port had been in contact with Shell for several months to discuss Bluff as a base. Some of the advantages put forward were significant berth availability, re-fuelling supplies, the huge scale lay-down area for pipes and materials, and past experience.
Southland Chamber of Commerce president Sean Woodward said business leaders and councils in the region needed to lead the way and encourage Shell to work in Southland.
Dunedin looked to be the frontrunner when it came to setting up a base, he said.
"It may not happen here for 10 years, but now is the time to make the effort and invest in potential opportunities, making sure there is infrastructure and people in place."
Venture Southland enterprise and strategic projects group manager Steve Canny said it was a good and predictable outcome, but it was still too early to prove the validity of any resources.
"It is such an early stage of activity, it will be difficult to pinpoint any direct benefit to Southland yet," he said.
The initial phase would likely see Otago providing response vessels but Southland had made a good case for being involved later down the track .
Green Party Invercargill spokesman Dave Kennedy said it was a huge risk and would have little benefit for Southland.
1970 Texas company Hunt Petroleum granted permit – drills eight wells for testing in the 70s and 80s but pulls out.
1996 Occidental Petroleum Corporation has five-year exploration permit but relinquishes it in 1996 without drilling a well.
1998 Antrim Energy fails to secure a joint investment partner and relinquishes its permit in 2000.
2007 ExxonMobil/Todd Energy joint venture and OMV-led consortium are given five-year exploration permits. New Zealand company Greymouth Petroleum granted five-year permit shortly after.
2010 ExxonMobil/Todd Energy pull out of basin due to technical risk.
2011 July 6 – OMV asks for extension to permit, which is due to expire, until September 10 to refine its search areas before 3D mapping.
July 27 – Greymouth permit expires. No commitment from the company yet.
August 16 – Shell announces partnership with OMV to continue exploration.
2012 Shell announces results from 3D seismic survey show good chances of natural gas deposits, but not oil.
2013 A meeting with Shell NZ exploration venture manager Roland Spuij and local business owners in Dunedin is abandoned because of interruptions from anti-drilling protesters.
2014 Shell decides to proceed with plans to begin exploration well drilling in the Great South Basin.