16 Jan 2015

Oil and gas industry tightens belt

12:41 pm on 16 January 2015

Some oil and gas businesses are reviewing operations due to plummeting oil prices, but the Petroleum Exploration and Production Association says the industry is unshaken.

Association chief executive Cameron Madgwick said he would be surprised if companies were not tightening their belts, but the industry was strong with plenty of activity planned this year.

The price of oil has dropped about 60 per cent since June - and the oil and gas industry around the world and in this country was feeling the pinch.

Kea Petroleum announced it would shut down production at its Puka Field site in Taranaki as a result of plunging oil prices.

In a written statement, the company said it had been working hard in the last few weeks to fix a technical glitch with the Puka 1 exploration well while continuing to produce from Puka 2 well.

"Unfortunately, the problem cannot be resolved with the equipment currently available.

"An alternative longer term plan is under consideration, however given the current oil pricing environment, the board has decided that the site is shut until the economics of the continued site operations improve."

The group said it was in talks with potential partners for the Mercury, Mauku and Shannon prospects.

TAG Oil had reviewed its exploration plan for this year, and deferred some work, but said it was still expecting a busy year.

Rock-bottom oil prices also forced BP to lay off 300 staff working in the North Sea, while other companies have cut pay.

Mr Madgwick said companies were having to responsibly manage their spreadsheets, but peaks and troughs in oil prices were not unusual.

"If you look at the history of oil prices over six or seven years there have been plenty of price spikes and plenty of times when the price as been low like it is now, and it comes back."

Mr Madgwick said the oil price drop was considered a short-term issue, given the long time frames for exploration and development

He says 15 new permits were issued at the end of last year.

The head of Venture Taranaki Stuart Trundle said it was a challenging time for exploration companies.

"This was always going to be a summer of less activity onshore, so was well-anticipated that some of those smaller companies had a far lower work program than historically."

However, he said bigger companies with larger cash reserves may be able to push on with large projects that were delayed due to long waits for rigs and expertise.

Sharp fall in oil prices

Global oil prices have fallen sharply over the past seven months, more than halving since June.

In the five years to mid-2014, prices were stable at around $US110 a barrel but fell in June by about 60 percent to $US48 a barrel.

This meant significant revenue shortfalls in many energy exporting nations, while consumers in importing countries are likely to have to pay less to heat their homes or drive their cars.

The retail prices of petrol and diesel in New Zealand tumbled for the third time in three days yesterday - the 22nd consecutive drop since October.

BP cut the price of 91 octane to $1.729 per litre, while Z Energy put it at $1.739.

Both companies dropped the price of diesel to $1.079 a litre.

The reasons for this change were weak demand in many countries coupled with surging United States production.

BP said expected the oil price to stay below $US60 for up to three years.

Meanwhile, the head of the International Monetary Fund, Christine Lagarde, said a sharp drop in oil prices and a stronger US economy probably would not be enough to brighten the prospects for global economic growth this year.

Ms Lagarde said if the global economy was weak, lower oil prices were not going to help.

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