Pohokura partner OMV New Zealand and Contact Energy have announced agreed terms for Contact to buy OMV’s 26% share of Pohokura gas for the first five years of production from mid-2006.
The news comes just a month after OMV and fellow Pohokura partners Shell NZ and Todd Energy announced they were going their separate ways in marketing of gas from the near-shore Taranaki field.
And, as already reported by EnergyReview.Net, Genesis Power and New Zealand Oil & Gas have agreed key commercial terms for Genesis to purchase NZOG's 15% share of Kupe gas (taking the total Genesis interest to 46%) and for Genesis to fund up to NZ$40 million of NZOG's Kupe development costs.
These latest moves have taken commentators somewhat by surprise because of the downstream energy players’ increasing involvement in the New Zealand upstream industry and the speed at which deals are being struck.
“It’s becoming a bit of a scramble out there; the bidding war has just intensified,” one commentator told ERN today.
“Genesis has now given a clear indication of its intention to actually become involved in upstream and other players may follow,” said a second commentator.
It is known other energy players bid for NZOG Kupe stake, and probably others for the OMV Pohokura gas, but were not aggressive enough in their bidding.
Contact will purchase the entire initial tranche of Pohokura gas from OMV. While Contact was unable to disclose the agreed gas price for commercial reasons, it did say the payment structure was a mix of a capacity fee, based on the maximum daily entitlement, and a variable element, based on the actual amount of gas lifted by Contact on any given day.
“This structure reflects the seller’s desire to have a high degree of revenue certainty before committing the substantial investment necessary for field development, and the physical characteristics of the gas reservoir,” said Contact chief executive Stephen Barrett.
The volume of gas covered by the arrangement is roughly equivalent to that used by Contact’s 380MW Otahuhu B power station in Auckland (about 20PJ a year). It is not be enough for Contact to commit itself to any of the new power stations it has planned for Otahuhu or Taranaki.
Barrett said the announcement was an important milestone for the company and the industry. “By committing to this agreement, we are taking a major step forward to securing New Zealand’s energy future during the remainder of this decade and beyond.
“Together with our existing supply arrangements from the Maui and TAW fields, this agreement provides us with increased fuel security in the short to medium term.”
Barrett said Contact (which had entitlements to approximately 40% of Maui gas) remained keen to secure even more gas “to meet our business needs, and also to underpin new investment in gas-fired generation.
“For these reasons, Contact remains committed to initiatives such as the drilling fund sponsored jointly with Mighty River Power, and the (LNG) study into New Zealand’s long term fuel options.”
