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There was a lot of press towards the end of 2009 regarding the Minister for Energy’s announcements about improving New Zealand’s chances of being a first world oil and gas nation, and these were broadly welcomed by the oil and gas industry, but, before we can mix it up with the big boys in terms of oil and gas output, it’s worth taking a look at the current oil and gas scene. It’s a scene that is still dominated by the Taranaki basin that is, to date, the only basin that has commercially produced oil gas, condensate and LPG. To me, one of the more interesting aspects of the existing fields in this basin is that almost all of them were identified decades ago and that there has been very little discovered that is actually new, and that even goes for the much lauded Pohokura and Tui fields. The big news over the summer of 2009/2010 was the largest, most expensive exploration drilling campaign in the country’s history, but almost all of it within cooee of the Taranaki Basin. When you look at a map of New Zealand’s oil and gas basins you can’t help but be struck by how few wells have been drilled in the basins outside Taranaki, and many of these basins are very much in the early stages of understanding in terms of exploration. Origin Energy has taken up the challenge to explore in the southern portion of the Northland Basin. Sceptics may call this the ‘North Taranaki Basin’, but it is certainly off the beaten track relative to New Plymouth, and Origin deserves kudos for planning to drill two wells in the area and going it alone after partner OMV pulled out. Origin’s pioneer spirit also extends to the Canterbury Basin and its offshore deeper water exploration permits. However, it remains to be seen if a well will be drilled there. The $40 million or so it will cost to drill is a lot of money, particularly when there is a 90 percent chance of losing it all, as there is with frontier exploration wells. Space is often described as the final frontier, but the Great South Basin, with its wild weather, deep water and massive swells is probably a close second. Hopes were high that ExxonMobil and Todd would announce their intention to drill a deep, very expensive, offshore well in their exploration permit, but even the mighty ExxonMobil is nervous about spending the upwards of $100 million to drill in an unproven area. There were a number of wells drilled in the area in the 1970s that could be classed as ‘discoveries’, but whether they are the multi-trillion cubic feet of gas monsters that will be needed to make a GSB project fly is the big question. This question will also be vexing the Austrian/Japanese/Thai group of explorers next door. Only time will tell if the reserves are there to justify bringing the gas to market likely to be in the form of export LNG and not likely to set foot in New Zealand, unless we were desperate enough to pay world prices? In the very best scenario, commercial production from this basin will not be until around 2021. By this time the supply/demand crunch could have hit hard, and New Zealand Inc might not be in a position to bargain. So, there are frontier basins around New Zealand, but not many companies exploring them. Which brings me to L&M Petroleum with rights to over 5200 square kilometres of exploration acreage in Taranaki, Westland and, most importantly, Southland. If there is any doubt that Southland can be defined as a frontier area, a quick look at the seismic data coverage in the area puts that to bed. Within our onshore permit near Te Anau there is only one conventional well and a handful of seismic lines. Yet this Petroleum Exploration Permit (PEP) is around the size of the entire onshore Taranaki Basin, and has enough space to fit in a number of substantial oil and gas fields. When you compare the seismic data coverage in Taranaki, the map goes black with the density of seismic data acquired. So, yes, Southland is definitely a frontier area. L&M has a keen interest in Southland. The geology is similar to Taranaki – similar source rocks, similar reservoirs, similar seals and similar structures. Southland also has the running room to pursue significant oil and gas targets, we have already identified several potential targets, one that could contain resources of over 300 million barrels of oil and another that could contain over 600PJ of gas. The offshore permit we retain has multiple structures and multi-billion barrel potential and single targets with up to 300 million barrels of oil. However, these targets are expensive to drill with the usual 10 percent chance of success expected in a frontier basin. They will require deep pockets, especially the offshore well. It’s almost the opposite for Southland’s coal seam gas (CSG). The coals that run through a trend in L&M’s onshore permits could contain up to 300PJ of gas resources, or around the same size of Kupe. CSG exploration wells are also inexpensive to drill. To date L&M has drilled five core wells with all of them finding CSG in coals and a number of stratigraphic wells, designed to define coal extent. The CSG is at between 200 and 600 metres in Beaumont coals up to nine metres thick. They can contain up to 6.75 cubic metres of methane per tonne of coal, which may not sound like a lot, but when you take into account the amount of coal in the area, this quickly adds up. Future uses of CSG will depend on the size of the development; a small development will most likely be converted to electricity, larger (up to 100PJ) could be converted to other forms of gas, for example for transportation. Once you get to large amounts of gas you would be looking at pipeline infrastructure, for retail or co-generation, or petrochemical production. Currently electricity is costly and there is a demand for LPG, for both domestic and industrial use, not to mention as a transport fuel. The demand for LPG has been growing dramatically over the last decade, and although this has tapered off some in recent times it’s still the case that of the 150,000 tonnes of LPG used in New Zealand annually, 100,000 tonnes of that is used in the South Island, all of which has to be imported, at a cost, either from overseas, or from the North Island. So there is a market that could be either supported, or indeed, replaced by CSG. There is also the opportunity for replacing the use of coal/wood for industrial boilers. The current practises cause significant environmental and health issues for air quality. At the end of 2009 L&M was in discussions with the privately-owned company L&M Coal Seam Gas (L&MCSG) with a view to acquire all or part of the corporate entity or assets. L&MCSG is currently New Zealand’s largest individual CSG permit holder; and is currently conducting exploration and production testing of CSG across the North and South Islands. L&MCSG had moved from theory to practice, recently receiving reserves certification from an accredited US reserves certification company. The 3P reserves (proved + probable + possible) total 173 PJ of CSG, which are located in L&MCSG’s Ojai exploration permit that is entirely enclosed with L&M Petroleum’s Waiau exploration permit. If an agreement is reached to join the companies, L&M will build a strong position, not only in CSG across New Zealand, but more crucially will move one step closer to commercialising CSG reserves in Southland. So, we know the gas is available, the potential market and the need for gas have been identified, alternative methods of distribution are available, and the technical feasibility is established. What is now needed is the commitment to make it happen. We think we can help with that.
Energy NZ Vol.4 No.1 Energy Perspectives 2010 |
Exploration might be increasing but most of it is still happening in Taranaki, with very little focus on frontier basins. L&M is one company with a focus on developing frontier energy resources in frontier basins, especially our coal seam gas resources in the South Island. By John Bay, L&M Petroleum managing director.