Origin Energy this morning said it expected the Kupe project to be completed by mid-2009, with the field producing about 20 petajoules a year of sales gas – about 15% of New Zealand’s current annual demand.
Kupe would also produce considerable liquefied petroleum gas, starting at 90,000 tonnes a year, and condensate, starting at 1.7 million barrels a year but declining over the life of the field.
“A tremendous amount of technical, design, consultation and assessment work has been undertaken to get the project to this point. We are delighted now to see the fruition of this work in a decision by the joint venturers to proceed,” said Origin managing director Grant King.
That work had included the design of an onshore production station to process gas from offshore; project reserves being increased by around 15% to 389PJ equivalent; and a renegotiated gas supply contract to accommodate the higher capital costs resulting from the booming oil and gas construction market.
King said the high level of associated liquids production meant the project would also benefit if the significant increase in oil prices over the past two years, to about $US70 per barrel, was sustained.
He confirmed an increase in overall project development cost to an estimated $NZ980 million, including appropriate contingencies.
Last October, Origin announced estimated project costs had increased considerably, from an initial $NZ400 million to almost $NZ800 million because of higher commodity prices and unprecedented levels of activity in oil and gas exploration and development around the world.
“These trends have continued,” said King.
“However, the renegotiated gas supply agreement, coupled with higher expected condensate and LPG prices and increased reserves announced last year, have assisted in offsetting project cost increases and have provided the joint venture with the confidence to proceed.
“We’ve also taken a progressive approach to the construction management of the project through an alliance contracting arrangement with the major contractor, Technip. Having one owner-contractor alliance team managing all the major activities other than drilling will lead to more effective and efficient execution of the project.”
Genesis Energy chief executive Murray Jackson said the positive final investment decision assured Genesis of long-term gas supplies for its combined cycle gas-fired power station, known as e3p, presently being constructed at Huntly. Genesis holds the rights to most Kupe gas.
“Both Kupe and e3p are critical assets that will help underpin New Zealand’s energy future and stripping out LPG will preserve New Zealand’s ability to meet the bottled gas market,” Jackson said.
New Zealand Oil and Gas chairman Tony Radford said his company was “delighted” with the positive FID for a field that NZOG had discovered 20 years ago.
The Kupe project will comprise: an unmanned offshore platform, supporting up to six wellheads, in the central area of the field; a new onshore production station; a shore crossing bored under coastline cliffs and connecting offshore pipelines to the onshore production station; and a network of onshore pipelines.
Construction is expected to start in September.
Deputy Prime Minister Michael Cullen said the central Government recognised the vital role oil and gas would play in the future energy mix of the New Zealand economy.
“The development of Kupe now sees it become an important part of that mix,” Cullen said.
South Taranaki Mayor Mary Bourke said today’s decision demonstrated “great confidence in the Taranaki oil and gas industry and solidifies Taranaki’s reputation as New Zealand’s energy region”.
Recoverable Kupe reserves are 253.5PJ of gas, 14.7 million barrels of condensate and 1.06 million tonnes of LPG.
There is also significant upside potential – of up to 200PJ of gas and 1.7 million bbl of condensate – from the northwest of the central field area and from Denby, Leith and the Kupe South-4 and 5 wells.
The Kupe partners are operator Origin Energy Resources, which holds a 50% stake, Genesis Energy (31%), New Zealand Oil & Gas (15%) and Mitsui E&P New Zealand (4%).
