Adam Feeley on Radio New Zealand's "Nine to Noon" (transcript)

MediaAdam Feeley on Radio New Zealand's

Eva Radich: Well, last week on "Nine To Noon", Linda looked in some depth about the declining state of the world's oil reserves. And, what we should be doing, to kiick our addiction to oil. This week in Auckland, the Ministry of Economic Development is hosting a Petroleum Conference, to look at New Zealand's potential as an oil producer. We're only a small fry, compared to Saudi Arabia on the oil and gas front. But, at least we haven't used it all up yet.

Adam Feeley is the New Zealand expert. He's group manager of Crown Minerals; which manages New Zealand's oil, gas, minerals and coal resources. I talked a little earlier, and asked him just how under-explored New Zealand's oil and gas stocks are at the moment.

Adam Feeley: Where we have explored, as most people know, is at the Taranaki Basin. But, the - if you like, the ratio of wells per square kilometer in the Taranaki, is probably about 20 percent of what you would find in a well developed basin overseas. But, you compare that to other parts of New Zealand, where there are - I think about 50, 60 wells around the rest of New Zealand. In a well developed basin overseas, there would be thousands - even tens of thousands of wells. So, we haven't even begun to scratch the surface.

Eva Radich: So, why is that? Why are we so far behind in scratching that surface?

Adam Feeley: Alot of reasons. Probably one of the most obvious is - that it was found in 1969. But, after 1976, it met all our needs. So, there wasn't the need to go exploring. There's a need today, with now declining. And, energy demand going up.

Eva Radich: So, it's as simple as that. Supply and demand. If there's enough demand; you can put the money in and go and find it?

Adam Feeley: Yeah, and 60 barrels - 60 dollars a barrel for oil, doesn't do any harm either. The economics of exploring in New Zealand, have improved immensely. There's an opportunity to make money in basins which perhaps, two or three years ago, there weren't those opportunities.

Eva Radich: But, exploring and recovering is also more expensive now. Because, of the pressure on now, to find more fields. Then I understand the cost to hire the rig, is going up. From something like 40 grand a day, to 100 grand a day. Or, is to from 100 grand to 400 thousand a day. Which is a huge amount of money.

Adam Feeley: It is. It's enormous. But, exploration companies are still making money. And, making good money. Cost is a factor. Probably a biggest problem though, is actually just finding drilling rigs.

Eva Radich: What? Finding one, that you can get to the side of the world - do you mean?

Adam Feeley: Finding one that will have - um, in some cases, you can't get access to a rig at any cost. At least not for 18 months. So, that is a problem. From the lead time for getting hold of a drilling rig. Or, going out and out. And, that will come back, as if more rigs are manufactured. But, right now - we talk about supply and demand. Well, right now, the demand for rigs is outstripping the supply of them.

Eva Radich: Anybody else going to start manufacturing them? So, we don't have to wait and plan 18 months ahead?

Adam Feeley: It's happening. It's happening, as we speak. But, they take 12 months to build.

Eva Radich: Well, they're big mothers, aren't they? (chuckles)

Adam Feeley: (chuckles) They are very big. Yes. But, it's not just - they not only take a long time to build. But, they cost a lot of money. So, companies have to make their decision. Will this demand for rigs continue. How many rigs do we need to build. And, will we get into a situation where we'll eventually end up with more, than there's actually a demand for.

Eva Radich: Yeah, I'd guess you'd have to say; we have peak oil now. Some of them have said, we've passed it already. Is it going to be worth putting them back - huge infrastructure, with these rigs. If the demand is not going to be there, in ten years time?

Adam Feeley: Yeah, I think that the question of peak oil at an international level, is certainly there. But, I think one thing that you can say, is that there was some fear between the likelihood of New Zealand having found everything, That I find it's going to find it highly unlikely. We've got many petroleum basins, which haven't been scratched. So, we are very much on the up-tick of the supply side of things.

Eva Radich: But, the figures. When you look at them from last year, in particular; they're not that good. There was a huge number of wells drilled in Taranaki last year. I think it was 34. 19 for exploration. Something like a 10 percent success rate. And, one of the big companies Austral-Pacific, which drilled the Hefi-One well; said just a few weeks ago, that there wasn't anything there. It was plugging. It was abandoning. Obviously, they put millions in and nothing to show for it. That must put people off?

Adam Feeley : I do't think so. I think it's the old story of statistics. I mean - you can look at any statistic you like and make a story out of it. But, I think if you look at it -

Eva Radich: But, was last year a disappointing year, in that respect in Taranaki?

Adam Feeley : Well, I think the statistics lookout for New Zealand, given the under-explored wildcat wells. The wells in which are drilled outside known well areas. And, there were 6 - there were 9 of those; which set to make discoveries. That's the number of success rate.

Eva Radich: Big enough discoveries, to be worth going and actually trying to get it out?

Adam Feeley : In some case, yes. In some case, no. But, that's the nature of the game. If you are getting a ten percent success rate. And, ten percent commercial success rate; then with gas and oil prices being what they are, you can make money. I think the real thing New Zealand needs to find, is not only more success, but more medium to large successes. And, that will make companies with - exploration companies with big budgets and an appetite to go deeper and further offshore.

Eva Radich: And, that brings me to back again, to the old supply and demand thing. Why should they come here and try and do that sort of work, if they're not convinced we have the potential worth exploring?

Adam Feeley : Well, they won't, if they're not not convinced. But, this regime is probably one of the best in the world. They get free access to seismic data. We're a secure sized country, to come and explore. And, some of them are making the decision to come here. Some of them have yet to be convinced. It's a process of building up more and more successes; which will lead to more and more companies coming. But, it's not going to be something that happens overnight.

Eva Radich: That's an interesting thing you just mentioned there. Crown Minerals and the New Zealand government - of course, does alot of the development work. As you've said; the seismic surveys. And, I understand somewhat recently, the East Coast field did a seismic survey. It makes it very easy for the oil companies. Because, in most places, they wouldn't have to do their - those surveys themselves. Are we making it too easy? Why are we giving away, if you like - the information that we could use ourselves? Well, the government is a unique institution. It's not a business the government's involved in. But, it is in the business of making sure we've got secure energy. And, the cost of funding seismic acquisition, pales in comparison to the cost of heading - or the cost implications of not having a stable supply of energy; for a country which is energy intensive. Dairy, forestry, aluminum - they're all industries which need alot of energy. And, without certainty around our energy supplies, the down side of not having exploration; is far greater. And, the costs are far more significant, than 1 to 2 million dollars to acquire data for a single basin.

Eva Radich: And, you think that situation will continue indefinitely. The New Zealand government will never be able to be in the business of exploration itself. That we don't have the resources?

Adam Feeley: Well, it's not - I think that's a philosophical question to debate.

Eva Radich: But, lit's probably one that people are asking, at the moment, Adam. And, when you think of what's happening internationally.

Adam Feeley:There are hundreds, if not thousands of exploration companies in existence today, which can do the job. So, I think at the moment, that question's moot. Because, the companies are there. We simply have to bring more them down here.

Eva Radich: Let's look at some of the fields, that are going to come on-stream. I believe in the end of next year. That's the MAR-D and the 2E Fields; both in Taranaki. Just how big are they. Does anybody know?

Adam Feeley: There are obviously reserves, which are booked by the country's in question. They are around 20 to 40 billion barrel range. And, that's significant. I mean, even by world standards. And, probably what's most significant about it, is they are all oil discoveries. And, while New Zealand obviously wants gas; exploration companies want to know oil prospects here. So, to have our latest two developments to be oil discoveries; it's an incredibly positive bit of news, to go out internationally.

Eva Radich: You've mentioned Norway, and how it transformed itself, with the discovery of oil there. What parallels do you see for New Zealand?

Adam Feeley: Well, I think small economies, small countries, small populations. And, some geographical challenges. And, countries - which both countries pride themselves on diversifying energy and having a good environmental record. That Norway goes to show, you can have an oil and gas industry. Without being - running counter to a longer term strategy of sustainable, renewable energy sources.

Eva Radich: So, we should still be working on that, as well? At the same time? Not putting any - yeah.

Adam Feeley: Absolutely. And, really - the key message about domestic gas; is that it provides us stability, to actually have the time to build up alternative energy sources.

Eva Radich: You mentioned some of the geographical challenges in New Zealand. I understand the big field of Stewart Island. I think it's called The Great South Basin, is one that's got huge potential. But, has been compared to the North Sea. Making the North Sea look like a mill pond. In terms of is anybody going to want to take that challenge on? Because, it's going to cost alot of money.

Adam Feeley: Yeah, I have absolutely no doubt that The Great South Basin will attract maybe more interest, than any other basin, before in New Zealand. It's challenging. But, the companies we're talking about. True, I know The Great South Basin rewards, more than match the risks associated with it.

Eva Radich: You've had some blocks up for tender at the beginning of last month, I think. What sort of response did you get?

Adam Feeley: Well, we don't comment on that. Until, we make an announcement. That announcement will probably be coming in the next couple of weeks.

Eva Radich: And, were you happy though? Can you tell me that, at least?

Adam Feeley: I'm sorry to say: I'm incredibly poker faced. But, I'm sorry. We don't comment on that at all. Until, the assessment process and bidding around, is fully concluded.

Eva Radich: What about the East Coast Field? Because, they're exploration blocks available there, as well. Does the right to explore, for instance - can you tell me; go to the highest bidder? Or, is it more the strategy of the company you look at?

Adam Feeley: It goes to the best company. The company we have the most confidence in doing the most work, in the best possible way.

Eva Radich: Finally, Adam - (Adam interrupts her)

Adam Feeley: It just goes back to that point that I made. The quality of companies we have here. In terms of resources. In terms of skills - that's absolutely critical. And, that's where New Zealand is making good progress. The last few companies coming to New Zealand are good companies. And, ;they will make a difference to exploration here.

Eva Radich: Can we become self sufficient, of course is the big question? Are you willing to comment on that?

Adam Feeley: Well, personally I think we can. But, it's going to need more exploration to do it.

Eva Radich: Thank you, very much. Nice to talk to you. (end of recorded interview segment) And, that was Adam Feeley, who is with the group manager of Crown Minerals; which manages our oil, gas, minerals, and other resources. And, he's one of the people who will be speaking at the Ministry of Economic Developments Petroleum Conference; which gets underway in Auckland, on or around about now.

MediaAdam Feeley on Radio New Zealand's