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The change of government brought with it a fresh approach to looking at the upstream sector and the untapped potential it presents. As the year passed there was a clear acceleration of policymaker thinking and sentiment towards the upstream space. McDouall Stuart was fortunate to be involved in some of the work that has supported this momentum, which culminated in November 2009 when the energy minister laid out a formal action plan towards realising New Zealand’s petroleum potential. Second, operational and exploration achievement – the successful development drilling of the Maari field and at the end of the year and the smooth commissioning of the Kupe field each marked major milestones for the sector. For almost a quarter of a century Kupe had been New Zealand’s marginal gas field (the gas resource that was known to market, but not economic to develop). With Kupe now in play, there is a clear need for further resource to be brought forward. The declaring by Greymouth Petroleum late in the year of the commerciality of its Kowhai field added important further capacity to the national gas stock. It also reinforced Greymouth’s place as an increasingly major player in the supply of local hydrocarbons. Third, 2009 also delivered a welcome uplift in sector activity and investment. A number of producers and explorers made major investment spend and/or commitments during the year, ranging from wildcat exploration campaigns to workovers of mature reservoirs to decisions to build new production capacity. Highlights included major offshore drilling programmes led by AWE and Origin Energy, Todd Energy’s commitment to its McKee LPG plant, the Maui B workover programme and new drilling at Kapuni. Listed capital market activity benefited from continuing strong share price performances of New Zealand Oil & Gas and Pan Pacific Petroleum, and, in October, the NZX re-listing of Cue Energy. Downstream, three events or themes stand outFirst, the announcement at the end of 2009 of decisions from the Government’s review of the electricity sector represents a major shakeup. While the package has been greeted with the sort of mixed reaction that could have been expected of any change, it seems to me to have struck a reasonable and very difficult to achieve balance between putting in place arrangements supportive of greater long-term retail competition and efficiency, while minimising disruption and discontinuity in the wider marketplace. Thankfully the inertia that has marked new transmission build over the past decade is now subsiding, which will lend important further support to new investment decisions along the electricity supply chain. Second, ongoing difficulties in consenting new renewable energy projects, particularly wind. Contact Energy’s 540MW Port Waikato and Meridian’s 630MW Project Hayes wind farms both ran into trouble for different reasons during the year, but the experiences of each serve to remind just how hard it can be to get environment-friendly, but large-footprint, essential infrastructure built. The turning down by the Environment Court of resource consent for Project Hayes is a particular concern; the more than 2000GWh of potential electricity from that massive single project would have been sufficient to displace around half of annual recent output from the coal-fired Huntly power station. It might still happen (developer Meridian appealed to the High Court), but some of the reasons identified by the court in its decision set a number of worrying precedents for developers. Finally, the emergence of a new local joint venture between Infratil and the New Zealand Super Fund as what looks increasingly likely to be the successful bidder for the current downstream assets of Shell in New Zealand. While Infratil’s initial plans for the assets sound both interesting and promising, the local investment community will need to be educated on what will be, for Infratil, a major new undertaking. The 2010 year - much to be upbeat aboutIn the first half of 2010, news from the upstream sector is likely to be led by the results of the AWE and Origin-led offshore drilling programmes. At least six wells are slated to be sunk by the Kan Tan IV semi-submersible rig during its New Zealand visit, at a total likely investment of more than a quarter of a billion dollars. That the companies involved in these campaigns are actively and substantially reinvesting in New Zealand is a very positive sign for the industry. Advancing work programmes in frontier basins, particularly the Canterbury and Great South Basins, will be interesting to track, as will the level of interest in the Raukumara and Northland frontier basin block offers which both close during 2010. At the policy level, government’s follow-up on the roadmap it tabled late in the 2009 year will be watched closely. Downstream, there is much work yet to be done to fully understand the consequences of the electricity reform package. As is always the case with regulatory change, the devil will be in the implementation detail. Although the next 12 months is likely to a period of feet-finding while the various players work through the implications for their businesses, how those players shape to respond over the period beyond will be a key focus of attention. Completion by Infratil and the Super Fund of its Shell downstream acquisition was expected early in the New Year, the implications and details of which will be pored over across both the energy and investment communities.
Energy NZ Vol.4 No.1 Energy Perspectives 2010 |
The energy year 2009 was one of the most eventful and progressive in years and the upstream sector will be remembered for three broad themes. By John Kidd, head of research, McDouall Stuart Securities.