The recent lack of interest in the New Zealand blocks offer along with the identified barriers to investment make mergers such as between Contact and Origin critical to further exploration in New Zealand.

Origin's diverse assets include gas and electricity retailing, upstream exploration and production, power generation and distribution.

Contact is principally a generator with a large retail electricity and gas customer base.

As its electricity is mainly hydro-generated, the company has been exposed to significant power availability and pricing shifts as the levels in New Zealand's hydro lakes fluctuate.

Contact has tried to manage those exposures by diversifying into gas-fired plants, but locally sourced reserves of gas are declining rapidly and Contact lacks exploration expertise.

Securing long-term fuel supplies for current and proposed gas-fired power stations was a key issue for Contact, deputy chairman Phil Pryke said when announcing the merger yesterday.

“This merger strengthens the capacity to find and secure additional gas resources by giving us direct access to Origin’s exploration and production expertise,” Pryke said.

Although it is well accepted that it is not necessarily the size or clout of a company which dictates exploration success, having a diverse portfolio is critical. Contact’s requirements in relation to security of gas supply will give Origin an added incentive to make its New Zealand exploration activities work.

How Contact will manage the New Zealand LNG feasibility studies now the project could directly compete with Origin’s exploration activities will be an interesting aspect of the new structure to keep an eye on.

Bryan Gunderson is a specialist in energy and resource legislation at Kensington Swan.