Distant prospects

Drilling ship Noble Bob Douglas 160km off Raglan, on the west coast of the North Island, where it...
Drilling ship Noble Bob Douglas 160km off Raglan, on the west coast of the North Island, where it has been drilling a test well ahead of sailing to Otago for more drilling. Photo from ODT files

The oil and gas exploration ship Noble Bob Douglas is due off the coast of Otago within days. Here it will begin a month-long deep-water test drill in search of what could be a multi-billion dollar gas find. But who will benefit? To what degree? And how long will it take? Bruce Munro takes a look. 

There are no known Otago people among the crew of the Noble Bob Douglas.

It is a mini-United Nations aboard the 229m-long and 36m-wide drill ship swarming with geo-scientists, petroleum engineers, drillers and other roustabouts, oil company representatives, caterers, cleaners and maintenance crew.

People are drawn from throughout the world by the high pay, travel and excitement that comes with being ''an oil man''.

International workers do 28 day rotations. A month at sea and then flown home for a month with family and friends. The starting salary for a driller is about $60,000 a year, but quickly climbs to north of $100,000 for those with experience. Accommodation, food, hotel stays and air travel is thrown in.

For those New Zealanders on board - and there are about 90 of them among the 200 crew - the pay and conditions are just as generous. The only difference is that proximity to home means their ''hitch'' is two weeks on, two weeks off.

Perhaps the drilling school poised to open in Taranaki will attract aspiring Otago drillers keen to share some of the benefits. But that awaits.

Within a fortnight the Noble Bob Douglas is expected to begin a $130 million test drill 60km off the coast of Otago Peninsula on behalf of Texas-based oil company Anadarko. Shell has begun a 2-D seismic survey further south in the Great South Canterbury Basin (GSCB).

In two years the oil giant, in partnership with OMV New Zealand and Mitsui E&P Australia, is also expected to do a $150 million test drill in the basin.

In the meantime, New Zealand Oil & Gas, which has just completed a 3-D seismic survey looking for likely drill zones off the coast of Oamaru, will partner with Australian company Woodside Petroleum to conduct a 3-D seismic survey southeast of Stewart Island starting in about 12 months.

It all sounds like it could provide a vitalising boost to Dunedin's fortunes and Otago's economy. Indeed, a 2012 report by economic research group Berl calculated a large offshore gas field could be worth $8.1 billion to the economy of any region hosting the industry, and $3.1 billion in regional GDP, while creating 11,540 jobs.

But others, including the Ministry of Business, Innovation and Employment, which commissioned the report, have gone no further than saying a commercial gas find would bring ''job creation, higher wages, higher demand for local goods, services and capital, and new investment in the region''.

Specificity is problematic, David Robinson says.

The chief executive of the Petroleum Exploration and Production Association of New Zealand says defining the potential benefits of oil and gas exploration is best understood in terms of waves, steps and hurdles.

''We start by having a bit of a quiet look, dipping our toe in,'' Wellington-based Mr Robinson says.

''The first wave is relatively moderate economic activity. In Otago there are already [oil and gas industry] people who are coming up and down, and staying in hotels and renting cars and eating in restaurants and cafes.

''The next wave is that you've got some drill commitments coming up.

''And each hurdle you get over that is positive moves you on to the next step. And the next step gets bigger.

''So what does that mean for Otago? I don't know. It depends. It depends on how many of these hurdles we keep getting over.''

Alan Seay, who is Anadarko New Zealand spokesman, says his company's test drill will result in ''quite large numbers'' of people temporarily living in Dunedin and the surrounding area.

The drill ship's three large support vessels will use Anadarko's logistics base in New Plymouth rather than Port Chalmers. But helicopters will use Dunedin International Airport to ferry crew to and from the drill ship most days during the 30-day drill programme.

It is bringing an immediate boost to the city's accommodation sector. Dharama Sena, who is Scenic Hotel Southern Cross front office manager, says it is too early to confirm exact details, but the presence of the drill ship will likely mean ''substantial room nights''. Some oil company employees and contractors are expected to spend up to a fortnight at a time in the city.

The city's engineering sector has the capacity and capability to service the oil and gas industry at present. But it could be a different story by the time exploration becomes production, which, if it happens, could be five or 10 years away.

John Whitaker, who is chief executive of engineering firm Farra, says representatives of Dunedin's 40 to 50 engineering firms, which employ 1000 people, have met with Anadarko personnel.

''We would need to ensure our health and safety and environmental practices align ... But in terms of technical capabilities we are pretty much there,'' Mr Whitaker said.

Mr Seay agrees the city has ''considerable engineering expertise and facility'' but says the oil company will be servicing its equipment and plant out of New Plymouth during the exploration phase.

That would change ''if we move to appraisal wells and potentially production further down the track'', Mr Seay says.

''What we've been at pains to point out is that the exploration phase does not carry with it substantial economic uplift. That [economic benefit] really does depend on us having a discovery and moving on to commercialisation and development.''

It is not much comfort to engineering workers hit by the late-2012 closure of Kiwirail's Hillside workshop and the recent scale-back and redundancies at Oceana's Macraes gold mine.

They are likely to be lost to the local industry long before they are needed.

Not that Dunedin's engineers want to look the proverbial gift horse in the mouth.

''It is not a panacea. But it is a wonderful opportunity - down the track,'' Mr Whitaker says.

If the short term benefits have a modest rosy hue, the long term outlook is a blazing, golden sunrise hiding behind a precariously balanced mountain of possibilities, ifs and longshots.

''Can I just tell you a little bit about Anadarko's experience in Mozambique where we have had a very large gas discovery offshore?'' Mr Seay asks. The find was in 2005 when that portion of East Africa was an oil and gas ''frontier territory''.

''In much the same way that the Canterbury Basin is right now,'' he says.

The Mozambique gas field is now in the development phase and Anadarko is building a $15 billion onshore liquefied natural gas processing plant.

''I'm not saying that's going to happen in Dunedin,'' Mr Seay adds.

''But if there was a discovery of any scale, the likelihood is that it would be piped to shore and that we would look at an LNG processing facility there. Since our location is only about 60km offshore, a pipeline is a sensible way of handling it.''

A productive gas well is like a stone thrown into a pond, Mr Robinson says.

''The ripples just keep going out further and further.

''It is surprising how many people get fed by the petroleum sector.''

That is the stage Taranaki is at today, Mr Robinson says.

''Supporting a viable industry which has all the routine day-to-day activities of crews coming in and out, supporting industries including engineering, environmental support services, manpower, stevedoring, catering, transport, logistics, motels ... it really is quite significant.''

Also likely to get some lead in its pencil is the local sex industry. Catherine Healy, who is national co-ordinator of the New Zealand Prostitutes Collective, said the number of brothels in Taranaki more than doubled within a few years of the oil industry getting established in the region.

But it was a perceived lack of alternatives rather than the prospect of big incomes that drew most sex workers, Ms Healy said.

''It's one of those industries that is available to people who can't find alternative work,'' Ms Healy said.

''The motivation for getting into sex work is normally mundane reasons like paying household expenses.''

Mr Seay says a significant gas find in the GSCB, doubling the number of productive basins in New Zealand, would bring the country to the attention of oil and gas explorers throughout the world.

''It would be potentially quite transformational for Dunedin, and not only Dunedin but for Otago and even New Zealand,'' he says.

But the chances of that find are not high.

The odds against striking commercial oil or gas in the GSCB are 10:1, or 90%, Mr Robinson says. In Norway they are 6:1 and in the United Kingdom 5:1.

With most of the world's easy oil gone, hunting for and extracting the fossil fuels on which our economies and lives are still so dependent is an increasingly difficult and expensive business. The oil industry has reportedly trebled its investment in real terms since 2000, but in return has only increased global oil supply by 12%.

The largely foreign-owned companies and their shareholders want a healthy return on their sizeable investment. So up to 90% of the profit from New Zealand oil and gas production goes offshore. The only notable exception is petroleum royalties. The New Zealand Government gets royalties on production, paid quarterly by the operator. These are set at 5% of production or 20% of profit, whichever is higher. In 2012, the Government received $334 million in royalties, all of which went into its general coffers.

If gas is found in the GSCB, Dunedin Mayor Dave Cull would like to see some of those royalties go directly to the region.

Different uses for a regional royalty have been suggested. They include a response fund in readiness for any petroleum spills off the Otago coast, and extending the runway at Dunedin International Airport. But Mr Cull's vote would go to funding the transition to a low-carbon energy future.

''It's all very fine talking about natural gas being a transition fuel, and maybe it is, to a point,'' Mr Cull says.

''But if you accept that, you have to ask what are we transitioning to, and how do we get there? Devoting regional royalties to resource the transition for the region or our city is a really good ambition.''

The mayor raised the idea of regional royalties with the previous energy minister, Phil Heatley, and at a heads of local government meeting with the National Party Cabinet.

Support, perhaps surprisingly, has come from Mr Robinson.

He acknowledges royalties help the Government pay for core services ranging from education to roading and health but says setting aside a portion for the region providing the resource is ''certainly something we think the Government should look at''.

''We think there is merit in it. We all know regional New Zealand needs a shot in the arm,'' Mr Robinson says.

It is unlikely to see the light of day. Certainly not on Simon Bridges' watch anyway.

Asked whether the Government was willing to consider regional petroleum royalties, the current energy minister said he believed ''the existing regime ... benefits all New Zealanders''. It seems the sort of direct benefit Otago residents should content themselves with is potential job creation.

The highest average household incomes in 2012, excluding Wellington and Auckland, were in Taranaki, Waikato and on the West Coast, Mr Bridges said.

''This is attributed to favourable world prices for oil and gas, in Taranaki, dairy in Waikato and, until recently, coal from the West Coast.''

Ah yes, the falling price of coal. Nothing is assured, that is for sure.


  • Next week: What are the risks? 


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