22 May 2006

Exploration funding to boost onshore petroleum developments

The Associate Minister of Energy, Harry Duynhoven, today announced that the $6 million funding provided from last week’s Budget to acquire geotechnical data to support exploration in New Zealand would be partly used to fund work aimed at gaining a greater understanding of the known fields within onshore Taranaki.

"The recent award of a permit to Greymouth Petroleum to produce from the Turangi discovery confirmed that onshore Taranaki still has a major role in New Zealand’s energy future, but technical challenges remain to unlocking the full potential of the region," Mr Duynhoven said today.

A consortium of petroleum explorers coordinated by Canadian company Tag Oil was in the process of being established to develop a programme of at least 6-8 deep wells onshore Taranaki during 2007-2008.

"We know that there are large volumes of gas in deep formations across onshore Taranaki, but production from them is hindered by the low permeability of the gas reservoirs – or, in simple terms, the gas is there but we just have not yet figured how to get it out.

"The programme hopes to trial innovative technologies in drilling and production, with the Government agreeing to fund the initial, data gathering phase of the programme.

"Gathering data on this issue will produce significant national benefit in terms of reducing the technical risks associated with exploration of this kind, and will build a critical mass of activity to economically justify mobilising specialist equipment and personnel to New Zealand," Mr Duynhoven said.

However, this initiative does not signal a move away from large-scale exploration in offshore New Zealand.

"Recent events have highlighted the high level of international interest from major exploration companies in offshore New Zealand - particularly the Great South Basin. The tender to be held this year was recognised as one of the most exciting current developments in the Asia-Pacific region,” Mr Duynhoven said.

The Minister added, however, that exploration of frontier offshore basins would take several years before the potential of these basins could be established.

"In the meantime, if we are to avoid creating a greater dependency on imported oil and gas with all the uncertainty that this involves, we need to ensure that the short term energy needs of New Zealand are met, at least in part, from domestic gas.

"The relative ease in discovering and bringing into production gas fields in onshore Taranaki – with the existing network of pipelines and production facilities – meant improving the knowledge of, and production from, deep gas, could make an enormously positive difference to the gas supply situation in New Zealand," Mr Duynhoven said today.

FACT SHEET

Background

There is a broad consensus within the petroleum industry that the onshore deep gas play holds significant additional potential. However, historically a number of gas discoveries have yielded disappointing production results despite very encouraging results in discovery wells and initial testing. It appears that these low permeability gas reservoirs are susceptible to damage during drilling, completion and production. The critical issue to be addressed is reservoir deliverability.

Potential damage mechanisms in low permeability wet gas reservoirs include:

- Reactive (water sensitive) clays
- Fines Migration
- Condensate Banking
- Invasion and Relative Permeability Effects
- Stress/ Borehole breakout (and consequent poor isolation of reservoirs)

These issues are not unique to New Zealand reservoirs and technologies are available and routinely applied in other basins (notably onshore North America, Australia, the United Kingdom, Norwegian sectors of the North Sea and the Middle East) to prevent or overcome these damage issues, including:

- Underbalanced drilling (air, nitrogen, foam, synthetic muds).
- Underbalanced completions and perforating
- Frac Technologies
- Laterals/multi-laterals, including the use of short radius drilling techniques
- Barefoot and monobore completions that preserve well productivity and maintain operational flexibility.
- Production Strategies designed to minimize pressure drawdown

The principal reasons for why many of these technologies have not been tested or applied in New Zealand are scale and cost. Most operators have dealt with only one or two fields and so have had a limited set of data on which to base development strategies, and little opportunity to apply experience from one project to another. In addition, generally only conventional equipment is available in New Zealand and the cost to mobilise and retain specialised equipment has been prohibitive for any single operator and not justifiable for small programmes.

Proposal

Crown Minerals is proposing to help facilitate a consortium of operators with difficult deep gas assets in onshore Taranaki, specialist consultants, and service companies with expertise in low permeability wet gas reservoirs, to trial technologies and reservoir management strategies to overcome the technical challenges associated with deliverability and improve the recovery from these reservoirs. The industry requires a portfolio of opportunities to secure equipment and personnel for a comprehensive exploration programme.

TAG Oil has agreed to coordinate the consortium and already has strategic agreements in place with specialist reservoir engineering and drilling/completions consultants in Australia (AWT) and North America.

The principal elements of the proposal are as follows:

1. Operators contribute Deep Gas Assets to build a portfolio of at least 6-8 projects.
2. TAG acts as overall project manager, facilitating communication between operators, Crown Minerals and AWT during the trial.
3. AWT provides specialist subsurface and well expertise, enhanced through strategic alliances with specialist drilling groups. AWT undertakes a candidate review and project selection process and is responsible for planning and implementation of technology trials.
4. Crown Minerals provides partial funding to ensure the projects remain cost neutral for operators (i.e. cost no more than the conventional approach).
5. Operators make historical well and production data available to AWT during the candidate selection process.
6. Those operators that proceed through to project implementation provide results back to the consortium so that benefits can be realised by other operators and used by Crown Minerals to promote future activity.

The programme will be managed in a phased manner, with decision points and financial commitments associated with each.

Benefits

The Deep Gas Consortium has the potential to:

- Add material (10s to 100s of BCF) gas reserves within two years;

- Add onshore gas production capacity within 18 months to two years;

- Build a critical mass of activity to economically justify mobilisation of specialist equipment and personnel to New Zealand;

- Acquire and share data and knowledge in optimal appraisal and development of low permeability gas reservoirs that will improve the technical risk and attract additional investment in the play;

- Demonstrate Government/industry collaboration and responsiveness in addressing the gas supply issue within a short to medium term timeframe.

ENDS

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