Rumours have been rife recently that Royal Dutch Shell plans to downgrade the status and size of the EP groups - Shell (Petroleum Mining) Company in Wellington and New Plymouth, together with Shell Todd Oil Services (half-owned by Shell) in Taranaki - and have all future EP projects run from The Hague, with operational support from Singapore.

Shell NZ chairman Lloyd Taylor admits there is likely to be some downsizing of New Zealand's EP team as part of this worldwide Shell EP initiative, but says details regarding how each region will function in the global business and services environment have yet to be finalised.

"Shell Petroleum Mining is the owner of all the EP JV assets of Shell in NZ, so it won't be shut down; downsizing yes, in so far as my role (as EP managing director) will in all probability cease to exist.

"Beyond that, material down-sizing is unlikely as all the asset owner responsibilities, including statutory responsibilities, still have to be delivered," he told EnergyReview.Net. However, STOS was a service provider-operator and did not own any assets, "so it's not part of this delivery".

When completing the purchase of Fletcher Challenge Energy's New Zealand assets in early 2001, former Shell NZ chairman Ed Johnson said Taranaki was "the jewel in Shell's East Asia resources" and that Shell would make the region one of the exploration capitals of the world.

He said then that Shell was committed to bringing investment dollars to develop the New Zealand fields to maximum potential and saw great exploration opportunities in this country, particularly in Taranaki.

However, industry commentators say that Royal Dutch Shell is now very disappointed with the FCE acquisition, given its required divestment of interests in several fields, coupled with two subsequent shocks.

The first is the reduced remaining recoverable Maui reserves, which means the field may run out 2 - 3 years earlier than the contracted 2009, and the second the recent downgrade, by almost a third, of the likely size of the Pohokura field, which is supposed to fill part of the gap left by a failing Maui.

Taylor said EP was "the last cab off the rank" and that other Shell business lines, such as the oil products and chemicals businesses, had already been through similar business model transformations during the last five years.

A key point to remember was that this was not a restructuring, "as naively suggested by some", but rather a fundamental change in the way of doing business, "which will have some structural consequences.

"Everyone will be impacted by virtue of a different model of business delivery, with a strong global orientation, within a framework of enabling global systems, standards and processes."

Taylor said the STOS focus would not change and that it would continue to provide efficient and effective operator services to a host of joint ventures in Taranaki.

Shell, as part of this new model, would run EP as a global process, which would be lead and managed from The Hague, under a global exploration director. This meant local exploration staff would report through to the exploration director in The Hague and exploration capital would be allocated on the basis of global ranking of all opportunities.

"This doesn't exclude the presence of exploration staff in this country doing the work. It is the priority of work and exploration expenditure that is determined within a global process."

Taylor added that Shell Australia would not be affected by the globalisation process, as it did its exploration through Woodside.

He also said Shell might spend more on New Zealand exploration in the next few years, though commentators wondered about that claim.

"Big, flashy locations, like West Africa, the Middle East and Gulf of Mexico may do very well with globalisation, while the more 'outpost' locations get lost in the centralisation of decision making," said one commentator.

"Shell will only be able to look after so many things at any one time and the little ones, like New Zealand, will get dropped, particularly with Shell's more stringent international investment criteria," he added.

Taylor said at the 2002 NZ Petroleum Conference in Auckland last February that this country now had to meet Shell's international criteria of 15-18% return on capital, 3% year-on-year production growth and 3% reduction in operating costs.