By Alan Wood
CHRISTCHURCH, NEW ZEALAND — New Zealand’s oil exploration is being re-appraised because of lower world oil prices.
Explorers are also finding it tougher to find joint- venture partners. Top industry players say the industry is slowing down, and smaller players in particular are finding it tougher to explore.
L&M Petroleum managing director John Bay said he was reviewing his budget to reflect the more difficult exploration environment, with proposals to be put to his board this week.
New Zealand Oil & Gas chief executive David Salisbury said revenues and profits from existing production were lower than previously recorded, particularly with the lower world oil price and high production costs.
But NZOG said it had $200 million in the bank, no debt and positive cash flow, and was being approached by small exploration companies offering opportunities.
“Typically a company has acquired an asset of some kind, entered into a work obligation and can’t now fund it . . . we’ve made a little bit of progress picking up some permits,” Salisbury said.
Other such ventures being worked through would be announced, but “the industry is slowing down”, he added.
Oil peaked at US$147 (NZ$284) a barrel in mid- 2008 but is now in a US$35 to US$45 trading band.
L&M’s Bay says a more sustainable price would be US$70-80 but oil would probably bounce around the $US38-50 range for the next 12 months.
The International Energy Agency this week said global oil demand in 2009 has been revised sharply down. It expects a two-year contraction in demand.
Bay said L&M had a good cash reserve of $9.5 million but would now likely concentrate more on its coal-seam gas exploration in New Zealand rather than on deeper conventional well exploration that had higher drilling costs.
“The current situation is causing us to take a hard look at our own budgets and say on one hand we want to remain very active but on the other hand we don’t want to spend all our dosh before we find out what the market is going to do . . .,” Bay said.
“If I’m having difficulty attracting the big international partners to help fund expensive deep wells, then we begin to spread those out further and buy ourselves more time. But at the same time we can accelerate our cheaper coal-seam gas programme.”
Petroleum Exploration and Production Association of New Zealand executive officer John Pfahlert said the climate for raising funds overseas for joint venture exploration was more difficult. “That’s probably no surprise given the decline in the price of oil, and also the international financial meltdown,” Pfahlert said.
“But the positive side is for the companies in New Zealand who have producing assets – the Shells, the Todds, the OMVs, the Origins, NZOG. The downturn hasn’t made a significant difference yet.” A weaker kiwi dollar was helping given that oil was priced in US dollars.