New Zealand Oil & Gas told the NZX this morning that the partners had signed major contracts, agreed terms for the petroleum mining permit, and had signed a floating production storage and offloading vessel (FPSO) lease. The partners had also agreed to drill two nearby prospects as part of the Tui Area development.
The Tui Area fields – Tui, Amokura and Pateke - will be New Zealand’s first stand-alone offshore oil development.
NZOG said the development decision was supported by extensive engineering and other technical studies, and the negotiation of contracts for supply of all the major equipment and services which were required to bring the oil fields into production.
The area and terms of the petroleum mining permit had been agreed with Crown Minerals and the partners expected to be awarded the licence (PMP 38158) soon.
The Tui Area fields, which were discovered during 2003-04 in water depths of around 120m, would be developed via four horizontal wells, with subsea completions, that would be tied back to the leased FPSO.
NZOG said it intended fund its 12.5% share of development costs (US$26 million) from a combination of cash, and debt financing which was currently being negotiated.
Operator New Zealand Overseas Petroleum (a subsidiary of Houston-based Transworld Oil) executed a charter contract last Friday with Norway’s Prosafe Production Services Pty (Prosafe) for the provision of the Tui Area FPSO.
Prosafe will both build and operate the FPSO for a fixed five-year initial-term contract of US$178 million, with options exercisable by the Tui joint venture for five one-year extensions.
Operator NZOP estimated recoverable Tui Area oil reserves to be 26.8 million barrels on a probabilistically derived P50 basis.
Project facilities had been designed for a maximum initial oil flow rate of 50,000 barrels of oil per day (bopd). Well productivity was expected to remain high, due to the nature of the reservoirs, but with a relatively rapid rise in water production and associated decline in oil rate.
To maximise ultimate oil recovery, the FPSO was being designed to handle up to approximately 120,000 barrels of liquids per day, with oil storage capacity exceeding 700,000 barrels. This would allow flexibility to efficiently utilise a range of different sized offtake oil tankers.
NZOG added that the Asia-Pacific region, including Australian refineries, was expected to be the predominant market for Tui Area oil. The light sweet oil had similar properties to oil produced from similar-aged reservoirs at the nearby Maui field and to Bass Strait produced crude that was a major feedstock to the east coast Australian refineries.
Last May the partners signed a contract with Diamond Offshore Drilling for the use of the semi-submersible Ocean Patriot rig, which expected to start a six-month drilling programme in the fourth quarter 2006. This will tie in with the scheduled FPSO arrival date in the second quarter 2007, with first oil targeted for the same quarter.
The partners also have the option to use the Ocean Patriot to drill up to three exploration wells in several prospects, including Tieke and Taranui, within the Tui Area PMP. NZOG said success at any of these exploration targets could be monetised relatively quickly by the tie-back of additional subsea wells to the FPSO.
In addition to the drilling rig and FPSO contracts, the joint venture has negotiated commercial terms and is close to finalising contracts for the provision of all other major equipment and services, including wellheads and subsea trees, subsea well control system, subsea flowlines and umbilicals and their installation, and tubulars for the wells.
"The development of the Tui oil fields, which NZOG and partners discovered in 2003-2004, is a major step for the company in establishing itself as a significant energy producer,” said NZOG chairman Tony Radford.
NZOG estimates that even if oil, currently around US$56 per barrel, falls to US$40 that its investment in Tui will be recouped within the first four months of first oil. Production will be from Eocene-aged Kapuni formations.
The PEP 38460 partners are: operator Transworld Oil (through New Zealand Overseas Petroleum) (45%), AWE NZ (20%), NZOG (through Stewart Petroleum) (12.5%), Mitsui E&P NZ (12.5%), and Pac Pacific Petroleum (through WM Petroleum) (10%).
