Wellington-headquartered Contact announced the deal last night after the New Zealand Stock Exchange had closed, and said Crown Minerals had awarded it a licence close to a number of permits held by other parties.
Contact - with its thermal power stations, involvement in LNG studies, and management of a drilling fund - always looked to be the next major downstream player to get involved upstream following Genesis Energy and its Kupe interest and more recent underwriting of Austral Pacific Energy’s Cardiff drilling program.
Contact chief executive Steve Barrett said Contact would begin a program of studies to further assess prospectivity within the permit and, provided study results proved positive, expected to drill an exploration well in 2007.
“The move to obtain this permit is part of Contact’s broad strategy to identify and secure a range of future energy sources for New Zealand. We have been working across a range of fronts to stimulate greater upstream gas activity.
“Earlier this year we announced an initiative with Mighty River Power to establish a gas exploration drilling fund to target gas prospects that can be brought into production in the next few years, which is the critical period coinciding with the rundown of the Maui,” said Barrett.
Commentators say Contact’s block bid may be a one-off occurrence and a kind of protection acreage.
“It was really the only block left on the Western Platform, which should see a lot of exploration activity over the next few years, and was a sort of protection acreage, aimed at encouraging new players in,” said one commentator.
“The whole game has changed now; there is so much flux, fluidity. I think Contact will seriously want to do this properly, using local expertise, with maybe operatorship farmed out to a competent company. It’s good news,” said another.
The Contact block borders licences PEP 38481-482, held by Shell, Todd Energy and OMV; PEP 38485, held by Origin Energy, Todd and OMV; and PEP 38488, held by US firm Pogo Producing Company.
Barrett said the offshore Taranaki Basin was the most likely source of significant domestic gas beyond the end of this decade.
“We have been in dialogue with a number of parties who have interests in that basin, and we have signalled our interest in purchasing gas from successful explorers.
“While those discussions have been encouraging, Contact is concerned that relying solely on existing explorers may not result in a sufficient level of activity. For this reason, Contact has decided to become more directly engaged in upstream activity.
“It is important to get timely information on the real gas supply potential in the Taranaki basin. The long lead time to develop a sizeable new discovery means that it would need to be identified in the next few years, if it is to play a useful role in meeting gas demand.
“Conversely, if the Taranaki Basin proves to be unproductive, it is important to know that soon so New Zealand can make the best choice from among the alternatives which include more renewables, coal and-or liquefied natural gas,” Barrett added.
Meanwhile, Contact and Mighty River Power have agreed to terminate two long-term electricity hedge contracts between them, with MRP paying Contact approximately NZ$69 million as compensation. Contact has also agreed to sell two surplus 24 MW geothermal generators
units, acquired as part of its purchase of the Poihipi power station, to MRP.
