Shell drilling decision likely next year

Shell, which is 70% of the way through assessing its $80 million of data on Great South Basin gas prospects, will probably announce by mid-2013 if it will fund a southern deep-water drilling programme.

Shell, while yet to make the drill decision, has said that the earliest it would consider drilling the frontier Great South Basin would be the summer of 2014-15.

It has raised its corporate presence in Dunedin in recent months, undertaken environmental impact reports and will host community group meetings next month, all of which may indicate more than a passing interest in possibly drilling one exploration hole.

Shell's New Zealand exploration venture manager, Roland Spuij, was in Dunedin last week, attending an engineering business cluster presentation on Wednesday. He had visited less than a month previously with numerous offshore joint venture partners to informally meet local government and businesses.

Mr Spuij said the ship-borne seismic data recently gained by Shell, including 20,000sq km of 2-D and 4810km of 3-D work costing about $40 million each, was about 70% processed in the Netherlands.

Shell took over from Austrian company OMV as operator of the Great South Basin permit, which has been halved to 16,715sq km. Government permitting agency New Zealand Petroleum and Minerals (NZPM) has granted a five-year extension to the permit from July.

Mr Spuij said the first phase of processing is expected to be completed by the end of January before moving into high-definition processing, which will reveal ''high detail'' of the seabed at 1000m-1500m thickness.

This work is to be completed by end of February.

''We are almost 100% certain there is no black [crude] oil there,'' Mr Spuij said.

However, of the two target prospect areas, one was ''quite good'', with indications of gas and condensate, the latter a sought-after very light oil which needs little refining.

By regulation, Shell has until January 2014 to formally report to NZPM whether it will ''drill or drop'' the permit, but Mr Spuij said Shell should be in a position by the second half of next year to announce its intentions.

Earlier this week, Brazilian oil giant Petrobras relinquished oil and gas exploration permits north of the North Island's East Cape, largely to cut costs and resume exploration closer to home.

However, its deep-water exploration intentions inflamed environmentalists.

Mr Spuij said the best prospect in the Great South Basin was at 1300m deep, and a drill ship or semi-submersible was being considered for one hole. Shell's preference would be use a vessel under long-term contract for a series of holes, incorporating targets in Australia, New Zealand, Indonesia and other parts of Southeast Asia.

On the growing concerns of accidents in deep water, Mr Spuij said Shell had done more than 100 deep-water holes, including one of the deepest at 2100m in the Gulf of Mexico.

He highlighted that deep-water prospects had less sediment on the seabed than closer inshore, meaning deep-water oil and gas deposits were ''not in an over-pressured environment''.

Of further public interest is the pending Government announcement of which companies have been successful in tendering for new exploration blocks, and whether Shell will feature in seeking new areas.

Shell has been tight-lipped for months on its plans and Mr Spuij declined to comment on its intentions on any potential interest in other block offers.

In preparation for the Great South Basin decision, Shell has started an initial report on environmental health impacts assessments and is due to begin a social and cultural assessment shortly, with invitations to southern community meetings later this month.

Mr Spuij said those meetings, in Invercargill and Dunedin on December 19, would include local government representatives, business groups, local iwi, environmental non-government organisations and the Southern District Health Board.

Mr Spuij stressed the long-term nature of exploration, saying if gas was found in a year's time during test drilling, it could be a decade later, in 2023, before production began.

Shell is building the world's first floating liquefied natural gas (flng) vessel, almost 500m long Prelude, estimated to cost $US13 billion, which will be anchored off Western Australia for decades to process gas to liquid at sea, for transfer to delivery ships.

Mr Spuij said Shell expected to keep building a variety of the flng vessels, which could potentially be used for gas offtake in the Great South Basin.

• Last month, the Government announced details and locations of the 2013 block offer tender which opens in April and closes next September, which includes more blocks within the Great South Basin and Canterbury Basin.

simon.hartley@odt.co.nz