While foreshadowed in EnergyReview.net in February this year, the news has still hit some commentators "like a bolt out of the blue" and evaporated any hopes of a Shell-led consortium finding further major gas reserves for the rapidly dwindling Maui field.
The announcement by Royal Dutch Shell - that as part of its annual global exploration capital allocation process it is reducing the level of exploration funding for New Zealand for 2004 - has also left commentators wondering if this signals the beginning of the end for Shell EP in this country.
"Shell could essentially operate what would be a production office here for the next decade or so, managing dwindling reserves, or it could produce out Maui and farm out its other interests, including Pohokura and Kapuni, and leave within the next few years," said an industry source, who preferred to remain nameless.
However, Shell New Zealand chairman Lloyd Taylor says that despite the Royal Dutch Shell decision, there will be no fundamental change to Shell's business strategy or business positioning in New Zealand. "Rather the decision reflects a more tightly focused business strategy that is a direct consequence of the global competition for risk capital.
"The immediate focus of Shell New Zealand's exploration and production business is on improving the return from its very significant investments of the last few years."
Shell NZ had exploration and production assets of approximately $NZ3.5 billion, and was facing a further investment of about $NZ500 million in Pohokura over the next two years to ensure continuity of gas supply in the face of declining Maui.
However, a $NZ17 million spend by Shell in New Zealand over the past two years had failed to discover any new hydrocarbon reserves, nor define new opportunities for exploration that were comparable to those available elsewhere in Shell's global portfolio.
Shell would now be concentrating on such areas as the Gulf of Mexico, West Africa, the Middle East, Kazakhstan and around the Caspian Sea.
Commentators said it was understandable that Shell would go "elephant hunting, although you can still make a lot of money rabbit hunting in a place like New Zealand, it's just that the risks and rewards are smaller."
They also wondered who would explore the deepwater Taranaki Basin, tenders for which close at the end of September, if it was not a Shell-led consortium?
Shell NZ spokesman Simon King confirmed to EnergyReview.Net that Shell would fulfill its work program obligations in existing licences, either by carrying out the work itself or farming out, but would not bid for future blocks. Its only major interests are the offshore Taranaki licences PEP 38481 and 482 west of Maui.
This cutback was foreshadowed at the 2002 New Zealand Petroleum Conference when several senior Shell executives, including Tim Warren and Pete Jeans, predicted little luck for New Zealand in winning international exploration dollars, with projects having to meet Shell's stringent criteria of 15-18% return on capital, 3% year-on-year production growth and 3% reductions in operating costs.
Taylor said that as a result of the Shell purchase of Fletcher Challenge Energy two years ago and its subsequent divestments, New Zealand still had exploration activities and a more vibrant, diverse and competitive industry - "notwithstanding the fact that these opportunities may not attract the attention of a company of Shell's size".
He again hinted at the possibility of this country importing LNG (probably from the North West Shelf and at a price of $US3 per Gigajoule), saying Shell was continuing to address the issue of long-term security of gas supply and investigating the potential of Shell's global portfolio of LNG technology, assets, and expertise for use in New Zealand.
