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Work didn’t exactly grind to a halt at L&M Petroleum (LMP) when the Pittsburgh Steelers beat the Arizona Cardinals in American football’s Superbowl back in February, but there was no way that managing director John Bay was going to show up at the office that day. Hugh de Lacy discusses sports and exploration with John Bay.
Bay and his wife of 32 years, Jill, were both born in the steel town of Steubenville, Ohio, 30 kilometres southwest of Pittsburgh, where adulation for the Steelers parallels that of the Super-14 Hurricanes professional rugby team in his adopted hometown of Wellington. “I’ve got more black and gold clothes in my closet than you could shake a stick at,” Bay told Energy NZ, noting the happy coincidence of the Steelers and the Hurricanes sporting the same colours. “I’ve been a Steelers fan since I was in short pants, so I took the Monday of the Superbowl off work and was rapt.” For all his support for the Steelers, Bay’s arrival in New Zealand in 1990 to take up a posting with what was then Petrocorp was prompted by his equally long-held enthusiasm for the tiny country he’d discovered inhabiting the same part of the planet as Australia. From early on, Bay had perceived Australia as having a kangaroos-and-beaches frontier mystique about it, and it was while boning up on the red continent that he became aware of New Zealand. He’d learned from books that, “Everything in Australia – whether it walks, swims, crawls or flies – can kill you. Then I noticed this little country next door that had nothing but a katipo spider that’s made like three people sick in a hundred years, and none of them died. And I thought, ‘How cool is that?’” After dabbling in psychology at university, Bay switched his studies to petroleum engineering, satisfying his curiosity for New Zealand by subscribing all the while to the New Zealand Herald. After graduating he worked as a drilling engineer for, successively, Gulf Oil and Tenneco. Then as the American oil industry descended into the turmoil of global over-supply in the late 1980s, he saw Petrocorp’s advertisement for an engineer in the American trade magazine Oil and Gas Journal. “I thought, ‘perfect’, so I called them here in Wellington where they were based and said, ‘Don’t fill that job – I’m your guy’.” A couple of months later he was packing up Jill and their two sons and heading for the South Pacific. After five years in New Plymouth, Bay was transferred to Auckland to work at the headquarters of Fletcher Challenge, which had acquired Petrocorp from the Government in 1987. He then set up his own consultancy business, Contract Strategies, before re-entering the corporate arena in 2004 to oversee the exploration activities of state-owned electricity generator Mighty River Power (MRP). In 2006 he was shoulder-tapped to take up the managing director’s role at the newly-formed LMP, a spin-off from the privately-owned L&M Group that had its beginnings in Nelson in the 1930s as the Lime and Marble Mining Company. Bay saw LMP through its successful A$20 million dual listing on the New Zealand and Australian stock exchanges in January 2007 and the launch thereafter of an ambitious oil and gas exploration programme. Recently the “gas” part of that programme has been targeting coal-seam gas (CSG), as distinct from the often unwelcome by-product of conventional petroleum exploration. “There’s an old saying in the petroleum industry that oil is an international solution and gas is a local problem,” Bay says, adding that LMP is the only explorer in New Zealand targeting CSG as well as conventional oil and gas. Last September LMP was rewarded with a strike fizzing with CSG at the first well it drilled in the old Ohai coalfield in western Southland. Laboratory analysis lent weight to the company’s estimate that the field could hold as much as 300 petajoules (pj) – the size, Bay says, of a Taranaki Basin gas strike like the 260pj Kupe. Unfortunately for the company, the announcement of the strike to the stock exchanges coincided with the collapse in the United States of the giant investment bank Lehman Brothers, an event now seen as one of the triggers for the onset of the global credit crisis. LMP’s share price actually dropped two cents that day, and it wasn’t until the lab reports came out in January this year that the market responded with a healthy jump. Enthusiasm for the stock has since waned in the face of the global crisis – compounded by the slump in oil prices despite the disconnection with local gas prices – by mid-February it was trading at less than 10 cents. Bay is unfazed by this development: LMP’s got plenty of cash in the bank for an exploration portfolio he has designed to develop cash-flow in the short-to-medium rather than the long term. Two CSG wells have now been drilled in Southland, with the results from the second due back from the lab about now, and there will be at least two more drilled this year to delineate the field, followed by a couple more to find the sweet spot for eventual development. Commercialisation of the field could be under way as early as 2011, depending on the outcome of the drilling programme, but lab tests so far suggest 80-90 percent of the gas is recoverable, compared to an average of 70-80 percent for most CSG fields. At this stage the most likely application will be electricity generation. Further to the west, about 70 kilometres from Invercargill, LMP has teamed up with Bay’s old firm Mighty River Power to drill the conventional Otahu gas prospect, currently planned for early 2010. Securing this acreage required LMP to do a deal with Crown Minerals whereby the company surrendered half its 1125 hectacre tenement to gain a second five-year extension of its permit over the remainder. Besides Southland, LMP has exploration acreage on the West Coast of the South Island and, more recently, in Taranaki, but the thrust of Bay’s strategy for the company is reflected in the joint venture he is contemplating with Australian company Salinas Energy to tap into the famous San Joaquin Basin oilfield in California. The first wells in this highly prolific basin were drilled nearly a hundred years ago, and continued to produce through into the 1960s. A second round of infill drilling followed the oil boom of the 1970s, and LMP’s foray into San Joaquin represents a third tier of exploration and development. Bay says there are two reasons for the California play. The first is the similarity in geology between California, on the eastern edge of the Pacific tectonic plate, and New Zealand on the western edge. “So there’s a technical comfort there, more so than in Australia which is completely different geology,” he says. “The second reason is that it’s the San Joaquin Basin: it’s proven and prolific, and in the centre of one of the largest energy markets in the world in southern California, so if you find anything – your commercialisation is done in a few months rather than several years.” Striking oil in America’s west would not threaten his allegiance to the Steelers from the opposite side of the continent, Bay says, and he’ll be backing the men of steel to repeat their Superbowl win next year. And in the meantime, he adds with a confident air, he expects that other black-and-gold team, the Hurricanes, to replicate the Steelers’ success in this year’s Super 14.
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Even after nearly 20 years in the New Zealand petroleum industry, Pittsburgh-area native Bay’s passion for gridiron and the Steelers is undiminished, and for once he was going to let it take precedence over LMP’s emergence as a hot prospect in this country’s energy and resources sector.