Several people have told EnergyReview.net this week that they expect Shell to announce its intended exit from the NZ EP industry on or after the completion of the NZ$1 billion Pohokura development scheduled for mid-2006.
“I know there are some potential clients already interested in their assets, provided the link between STOS and Todd Energy can be severed,” one E&P veteran told ERN, referring to the Shell Todd Oil Services operatorship of Pohokura, Maui and Kapuni and the 50/50 ownership split between Shell and Todd.
“I have long held the view that Shell will exit the New Zealand EP scene by either selling the assets, or the business, as these do not meet any of the Shell Group performance objectives and do not have any long-term growth potential.”
As a result of Shell’s under-investment and under-commitment since its 2001 acquisition of Fletcher Challenge Energy (FCE), plus the accelerated decline of the Maui gas field, Shell’s NZ gas market share would decline from about 85% in 2001 to under 45% in 2007-08, notwithstanding the commissioning of Pohokura, he said.
“In a very brief period, Shell will have frittered away a pre-eminent gas supply position, which is a pretty sad statement on the rationale for the acquisition of FCE, and the decline in reserves is even more pronounced.”
Another industry figure, a downstream executive, said the NZ E&P business had been regarded as a non-core asset for Shell International for some time and he also expected a “for sale” sign shortly.
“They [Shell] will want to see Pohokura completed, to maximise the value from that project, but after that I wouldn’t be surprised if they bolt,” he said.
“And any formal announcement will quickly see interested parties, probably including some existing Australian majors, start formal discussions – it’s just a question of timing.”
He said any purchaser of Shell NZ’s EP assets would place a premium on the operator role and the associated control and influence. They would not want any deals cluttered by the present STOS arrangement.
Likely Australian bidders could include Origin Energy (though Origin’s existing majority stake in Contact Energy might complicate matters), existing Pohokura partner OMV, Santos, Woodside Petroleum or even Oil Search, which is still looking for meaningful growth opportunities beyond Papua New Guinea, one analyst told ERN.
Apache and British independent Premier Oil plc – both of which looked seriously at the NZ exploration scene earlier this decade – could also be interested.
“OMV would be in the driving seat to assume operatorship of Pohokura and Maui, with their existing stakes and financial and technical capabilities,” said the downstream executive.
Shell NZ spokesman Simon King hosed down the speculation regarding his company saying Shell was fully committed to Pohokura coming onstream by mid-2006 and to maximising the remaining potential of Maui and Kapuni.
“At present, Shell’s EP assets in NZ provide a positive contribution to Shell’s EP portfolio,” King told ERN.
Shell International’s decision two years ago to effectively run Shell NZ’s EP business from Singapore had been a good one, according to King.
“The regional model has expanded the breadth of Shell’s input into its New Zealand assets, and we believe that this approach will create more value for our EP assets in New Zealand, which is good for Shell and for the country,” he said.
“Shell’s management team, on the ground in New Zealand and in the region, works with STOS to ensure we are applying the best technology and management skills to our assets here, and that we are able to use the best and most appropriate people in the region in New Zealand when we need them.”
ERN last week reported several in the industry as saying that decision to run operations from Singapore was fatally flawed, as the relationships that were formerly managed by the New Zealand managing director and country chairman were impossible to handle long-distance or on a fly-in, fly-out basis every six months or so.
Todd Energy and OMV NZ have declined to comment.
The interests in Shell’s major NZ gas fields are: Maui - Shell (83.75%), OMV (10%) and Todd Energy (6.25%); Pohokura - Shell 48%), OMV and Todd (26% each); Kapuni - Shell and Todd (50% each).
