Todd comes out of its shell

Todd and Shell – these two names have been synonymous as partners in the local oil and gas business for almost half a century. Now Todd Energy, the biggest New Zealand-owned petroleum producer, has broken out on its own and the result, says Todd managing director Richard Tweedie, has been liberating.   By Lindsay Clark.

When Shell announced four years ago an end to any significant new petroleum exploration in New Zealand it meant a major change of direction for long-time partner Todd Energy.

As a big multinational oil company, Shell had decided to divert exploration funds into much larger projects in other parts of the world. For Todd Energy, as an exploration and production company operating only in New Zealand, to have stopped exploring would have meant inevitable slow financial decline.

The two companies had been operating in partnership for around half a century through most of the country’s key energy projects, including the Kapuni, Maui and, more recently, Pohokura gas fields. They still jointly own the Shell Todd Oil Services (STOS) company in New Plymouth, which operates the Kapuni and Maui fields. In all but name, STOS is still run by Shell.

“When Shell decided not to explore more in New Zealand, in many ways that was liberating for us,” says Richard Tweedie, the managing director of Todd Energy, in an exclusive interview with Energy NZ.

“It meant we had to get out on our own and make our own path forward. We recruited people from around the world, including some Shell staff, when we took over operatorship of the McKee and Mangahewa oil and gas fields, which STOS were operating for a while. That was a great step forward for us. We could again control our own destiny,” says Tweedie.

“We didn’t choose to go out on our own. But Shell having made its decision, allowed us to mature from an upstream point of view into a solid performing E&P company. We can now explore and operate right through the exploration phase from acquisition to drilling.” The firm is now that much more mature and strong, he adds with obvious satisfaction.

Tweedie enjoys a reputation in the industry as a smart operator, capable of making tough decisions for his company and, when necessary, taking strong legal action to defend its interests. To play in the same league as the big international oil companies can be a tough school.

Talking from the Todd headquarters in Wellington, a relaxed and affable Tweedie is surprisingly frank and open about the private company that is the heart of the family-run Todd group. He is reluctant, though, to talk about himself beyond giving a few CV-like details. A lawyer who joined the Todd Corporation in 1976, he became general manager of Todd’s exploration and production arm Todd Petroleum Mining Company in 1988, CEO of Todd Energy in 1990, and managing director in 1993.

Tweedie says that when he joined Todd Petroleum Mining there were only six or seven staff with the main assets limited to a 6.25 percent stake in Maui and a 25 percent share in Kapuni. Todd increased its Kapuni stake to 50 percent in 1991 after buying out BP’s interest in the field. He has overseen Todd Energy’s growth into the only vertically integrated energy company in New Zealand which now employs 265 staff. The exploration and production arm employs over 40 people while a number of “downstream” energy subsidiaries in gas wholesaling and retailing, electricity generation and distribution and solar heating manufacture employ the remaining 225 staff. Todd uses its Novagas subsidiary to wholesale and retail natural gas and it supplies gas to three co-generation plants for electricity and heat.

“The benefit of being vertically integrated is that it enables us to sell our own gas production to a spread of customers throughout the value chain,” says Tweedie.

The company has also recently moved into oil distribution offshore by pumping condensate and oil from the McKee-Mangahewa and Pohokura fields to the port at New Plymouth. It recently chartered a tanker, the Savannah, to move its own liquids to refineries in Australia.

Todd Energy has also expanded its upstream interest to hold substantial stakes in six of the nine largest petroleum producing fields in Taranaki, and at a time when both domestic gas prices and oil prices have risen.

“The business has boomed to date,” reiterates Tweedie, “our return on shareholder’s funds over the past five years has exceeded 40 percent per annum.”

Todd Energy’s balance sheet assets today are conservatively worth $2.4 billion, he says.

“The business has been an outstanding performer.”

Size-wise, Todd Energy is substantially larger in terms of primary energy production than the two biggest electricity generators Meridian and Contact Energy. The only company larger is Shell.

From his boardroom windows, Tweedie can look down on the headquarters of both Meridian and Shell on Queens Wharf, while the Contact head office is just a block the other way. While other industries may have drifted to Auckland, Wellington is more than ever the oil and energy capital with Todd Energy at its heart.

“We have stayed in New Zealand because we understand New Zealand geology fairly well. We feel we understand the opportunities here pretty well. We’ve got hydrocarbons here and we understand exploration.

“Some E&P companies dash around the world with interests here and there. They become master of none and good at nothing,” he says.

“I don’t think anyone else has been quite so successful as us in New Zealand, both in discoveries and translating them into successful projects.”

Replacing used production from fields with new reserves is a key goal of all E&P companies. Todd Energy has an exploration budget of about $20 million a year and has been able to maintain or increase its petroleum reserves over the past seven years, Tweedie says.

Though not mentioned at our interview, Todd Energy is also in the middle of spending around $250 million for its 26 percent share of development costs for the billion dollar Pohokura project, plus over $80 million for its share of the Maari oil field project costs.

Todd now feels confident enough to reach outside its Taranaki Basin home turf to take up a 10 percent stake in a Great South Basin exploration permit in partnership with the biggest company in the world, ExxonMobil. The exploration permit is some 200 kilometres south of Bluff.

“We are thrilled to be involved with Exxon,” says Tweedie. “They are a breath of fresh air. Exxon have always had a great reputation for technical competence. But, refreshingly, they are good commercially and just get on and get things done.”

If the Great South Basin venture is successful, any development is likely to be gas piped ashore for liquid natural gas export, he says.

Back in offshore Taranaki Todd has also been actively exploring south of the Maari oil field where Todd has identified a Moki sands oil prospect with the potential to contain up to 100 million barrels.

“It is a Maari look-alike,” he says. “We are carrying out discussion with potential partners now. When those are ready, we are going to drill it.”

Todd has named the prospect Matariki after the Maori New Year. Like all optimistic oil explorers, Tweedie hopes to find something big in the new year.

The balance sheet

Todd Energy, privately owned by Todd family through Todd Corporation, is one of the country’s largest companies with assets conservatively worth $2.4 billion.

Return on shareholders funds have been over 40 percent a year for past five years.

Key assets are: 26 percent of Pohokura gas condensate field under development (now NZ’s largest gas field with reserves of 880 petajoules); 50 percent of Kapuni gas condensate field (remaining reserves 263 PJ from 1100 PJ total); 6.25 percent of Maui gas condensate field (remaining reserves 438 PJ from 4000 PJ total); 16 percent of 50 million barrel Maari crude oil field coming on stream in 2008; 100 percent of Mangahewa onshore gas field (new discoveries greatly increase size), and 100 percent of McKee onshore oil and gas field.

Gas and oil production: 10 million barrels of oil equivalent (mmboe). Todd production on volume is 77 percent gas, 23 percent liquids. Revenue comes 56 percent from gas and 44 percent from liquids.

Future oil and gas production  is likely to rise to 12 mmboe in 2009 with Maari and Pohokura in full production. Oil and gas reserves: 114 million barrels of oil equivalent.