Hunting for the big one

Tui, the latest oil project to start production in New Zealand, might not have happened if it were not for a bit of luck and the tenacity of a Kiwi accountant graduate who drifted into oil exploration.    BY LINDSAY CLARK

The first barrels of waxy crude are now surging up the flowlines from the offshore Tui oil field 50 kilometres off the Taranaki coast.

But Tony Radford, who 11 years ago initiated the original exploration permit PEP 38460 where Tui was discovered, knows that but for an ounce of luck the field may never have been found.

Radford, who has been chairman of New Zealand Oil & Gas and was the prime mover in founding the company in 1981, says that when the Tui-1 was drilled in early 2003 the large Kapuni D sands prospective target, which had attracted new partners, found no oil.

It wasn’t until the drill bit went down further to a secondary target at 3.6 kilometres that a “nice oil pool”, just 10 metres thick, was found in the Kapuni F sands.

“It was a bit of serendipity I guess,” he says.

It is a serendipity that could yield about $2.5 billion worth of oil at current prices from the 27 million barrel field – though that’s only enough to supply all New Zealand oil needs for about nine months.

“I’d like to find a few more Tui’s – or better,” says the self-confessed ‘oiley’, in an interview just a day after the Tui oil began flowing.

“One of things in this game is hitting the big one and the excitement of it. That’s what draws small companies – and the great big companies.”

Though Radford has lived for most of his adult life in Sydney he is still a Kiwi, if something of a trans-Tasmanian one. He was born and schooled in Palmerston North. After finishing his accounting degree in Auckland he took off for Sydney.

His first job there was at the production end of the minerals industry with steelmaker BHP, then with tin smelting. His first contact with exploration was with silica mining in Far North Queensland, before gravitating towards exploration with direct involvement in base metals and gold.

This included setting up a company, which grew into Otter Gold Mines, part-owner of the Martha Hill gold mine at Waihi.

“I sort of worked my way backwards towards exploration,” he says. “But I’ve always been intrigued by the oil game.”

Back in the 1970s the second oil shock of 1979 sent oil prices to US$40 a barrel – a huge rise from the $3-4 a barrel price earlier in the decade.

In 1979 Radford started up a company in Sydney called Pan Pacific Petroleum NL and got it listed on the Australian Stock Exchange. Pan Pacific today is a 10 percent partner in the Tui field and Radford is still chairing that company as well as New Zealand Oil & Gas.

A couple of years later he was the driving force in establishing and listing NZOG on the New Zealand Stock Exchange.

“NZOG was a straightforward rank exploration company and we went exploring,” Radford says.

An exploration team was set up in Wellington that included Dave Bennett, who soon became exploration manager.

“We got involved in offshore Taranaki from the word go,” says Radford. NZOG also went exploring in onshore Taranaki and even ventured into drilling in the Solander Basin and offshore Westland.

The first discovery NZOG participated in was the Kupe gas field in 1986.

“Kupe was an exciting discovery, but the timing was unfortunate. We were looking for oil but we found mainly gas. With the big Maui field dominating the market with cheap gas, Kupe simply couldn’t be developed,” he says.

It was almost 10 years later before the company found its first oil field – the relatively small Ngatoro field in onshore Taranaki. Earnings from Ngatoro oil were largely used to help fund further exploration.

Radford’s determination to keep looking for the ‘big one’ was backed up through these years by a hardy bunch of shareholders who had little or no financial return from their shareholding.

“We attracted many thousands of New Zealanders who felt that looking for oil was a good thing. It was a bit of a club really. But that has changed recently with some bigger investors bringing in significant investment.”

Radford says that over the years NZOG has “stuck to its knitting” – exploring for oil.

“We’ve stuck to our game rather than turning the company into a merchant bank or whatever happens to be flavour of the month. Now oil companies are flavour of the month.”

Thin times in the 1990s forced NZOG to close its offices in Wellington and amalgamate its technical team with Pan Pacific office in North Sydney. Dave Bennett stayed in Wellington and went on to head up Indo-Pacific Energy, later renamed as Austral Pacific Energy.

Radford appointed a Kiwi geologist, Eric Matthews, who had been working with NZOG in Wellington as the company’s next exploration manager operating from Sydney. Matthews has been with the Tui project all the way, though he stayed behind in Sydney when NZOG moved their offices back to Wellington three years ago. He became New Zealand exploration manager for Australian Worldwide Exploration (AWE), now the operator of the Tui joint venture.

The original PEP 38460 permit was taken out in 1996 by NZOG and Pan Pacific as 50-50 partners. Radford says the first prospect in the permit chosen to be drilled (Hochstetter-1), “was a less than fortunate choice”. It had excellent quality reservoir sands but no oil.

Later, excellent quality reservoir sands were also found when the Tui-1 discovery well was drilled. Although, this time in the top 10-12 metres of the Kapuni F1 sands the pore spaces in the millions of years old beach sands were filled with liquid oil that could flow freely.

The oil pool was small, but perfectly formed. So confident were the partners in the quality of the oil find that no flow tests were ever carried out at Tui or the other two neighbouring pools discovered – Amokura and Pateke.

Not a barrel of oil was produced (just drill bit rock cuttings and core for analysis) and yet decisions were taken to commit US$270 million to develop the oil field.

Radford says the Tui project probably wouldn’t have been able to be developed without high oil prices, the oil filled sands, and advanced technology such as horizontal wells and subsea wellheads.

After a quarter of century of exploration downs than ups, NZOG is finally involved with three commercial projects – Tui, Kupe and Pike River Coal, which have all come together at once. The prospects for all three projects have been boosted by consistently higher prices for oil, domestic gas and export coking coal.

“It’s proved quite a challenge but we’ve managed it,” he says.

The rush of oil expected from Tui in the first two years will provide NZOG and its partners with a huge cash flow, which rapidly falls to a long 1-2 million barrels a year tail over the next eight years. Kupe and Pike River should provide steadier income flow to NZOG over a longer term.

Like every good ‘oiley’, Radford is optimistic about the future.

“I’m sure there’s more oil to be found in offshore Taranaki – hopefully in our licences.”