big exploration spend-up tipped

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    Big exploration spend-up tipped
    27 June 2003

    Shell New Zealand has flagged exciting prospects for Taranaki with big money being spent in the region in the search for gas and oil to replace Maui.

    This forecast is included in a profit announcement yesterday by the Shell New Zealand companies, which outlines a record after-tax profit of $239.9 million for the 2002 year – much of which has come from the Taranaki-based exploration and production (EP) business.

    And a lot more is about to come.

    The announcement says total capital investment in the EP business in 2002 was $88.4 million, including $44.3 million on appraisal and development studies for the Pohokura gas field off Motunui.

    And it adds that a further $450 million of Shell investment is likely to be required for the Pohokura project before commissioning of the gas field in the first half of 2006.

    The Shell companies own 48% of Pohokura – so this announcement is the first official indication that the total cost of the development project has moved over $1 billion.

    And the announcement also indicates that big money is about to be spent on exploring for a Maui replacement.

    "Looking to the future, the key challenge for the EP business is to offset the longer-term production decline of the Maui field by the early development and commissioning of the Pohokura gas field, supplemented by an exploration effort directed at large oil and gas prospects in the offshore Taranaki region," said Shell chairman Lloyd Taylor.

    Shell's exploration and production business profit was generated on revenues of $1018 million which, because of the impact of a $148 million foreign exchange accounting loss, understated an operational performance which was up 75% on that achieved in 2001, said Dr Taylor.

    But the EP result was buoyed by a high average oil and condensate price of $55.11 per barrel during 2002, and represented the first full-year contribution of the assets acquired with Fletcher Challenge Energy in 2001.

    The total capital investment in the EP business in 2002 was $88.4 million, including the $44.3 million investment in Pohokura gas field appraisal and development studies. Exploration expenditure in 2002 was $7.9 million.

    In addition, $14 million was written off on the withdrawal from the Maari Joint Venture.

    Dr Taylor said Shell New Zealand's significant investment in New Zealand's oil and gas assets resulted in satisfactory returns during 2002, but there were significant challenges for the future.

    The decline in Maui oil and gas production, the strengthening New Zealand dollar and the probability of softening oil prices in the second half of 2003 meant that for the foreseeable future the performance of the EP business was likely to be less than that achieved in 2002.

    Shell also used yesterday's profit results announcement to clarify pending management changes.

    At the end of this year, having completed the integration of Fletcher Challenge Energy into the business, Dr Taylor will leave Shell to pursue a new career path. "Personally, it is very satisfying to be able to leave the business in such strong financial and operational shape, well positioned to meet the competitive challenges that lie ahead," he said.

    Changes to Shell New Zealand's EP management structure are linked to progress in global restructuring of Shell's EP business into five regional businesses. Under this restructure, the New Zealand EP business will become a component of an integrated Asia-Pacific business unit.

    This parallels the changes which took place in the oil products business three years ago, resulting in the New Zealand business now being a component of Shell's East Zone Oil Products business.
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