EnZed was formed just last year; it is a tiny, private Adelaide-based company that was awarded the first new offshore petroleum licence issued in New Zealand since the Government lifted the ban on offshore exploration in 2025.
The licence, and the Kaheru prospect, border the existing Kupe gas field.
Several market participants said the company has been actively seeking investment.
The gas fund is managed by the Ministry of Business, Innovation and Employment (MBIE) unit Kānoa.
Brent Chalmers, general manager investment management, said many of the details of the EnZed investment are still being finalised.
“The intent is the equity will be in the company, not the licence. We’re proposing that, if the project succeeds the Government would realise an increased return on its invested capital but if it doesn’t the Government would lose its invested capital just like other investors,” he told the Herald.
“The equity repurchase or redemption triggers would depend on the drilling outcome, but either way the shares would be redeemed by an agreed long-stop date.”
Chalmers said the Crown would receive a carried working interest, with no further obligations to contribute to costs, and drawdowns of funds would be based on certain conditions and milestones being met.
He declined to release further particulars of the deal, for reasons that they might not yet be firm, they may remain confidential to the company and they could prejudice Kānoa’s ongoing negotiations.
He wasn’t aware of a time-limited equity investment ever being used by Kānoa but noted that it has used a wide range of investment structures.
A drilling platform off North Taranaki in the Pohokura Gas Field in better times for the sector. Photo / Rob Tucker
The minister and the company
Resources Minister Shane Jones said the EnZed funding targets an estimated 182 petajoules of additional gas reserve.
However, exploration wells are highly speculative and miss the mark of commercial viability much more often than they hit it.
Jones said that the Crown’s exposure is “as an investor in the company [EnZed]” and it has not taken on any additional liabilities for the exploration programme.
He said that if no funds are returned to the Crown, it will be “ … because the expected resource wasn’t discovered or could not be economically recovered, and all investors will share in the loss. However, Cabinet believes the potential gains make this worth investigating”.
However, there also appears to be a sizeable risk that EnZed never raises the funds it needs to drill in the first place.
EnZed needs a partner or partners to bring another $50m to the table or to raise the funds itself through equity, just to get to the point of drilling.
Exploration drilling is widely considered too speculative to anchor lending.
There are no longer any offshore drilling rigs in New Zealand; EnZed would need a jack-up rig capable of drilling in relatively shallow water up to about 120m and the company would need to foot the multimillion-dollar cost of mobilising one here.
It is possible that, if other companies come forward with exploration plans, a consortium could be formed to share the cost.
A spokesman for EnZed welcomed the public investment and confirmed the well would be drilled offshore (rather than drilled onshore to offshore).
The company’s initial focus is largely desktop analysis, which includes reviewing and reinterpreting existing geological and seismic data, and new seismic surveying is not anticipated, he said.
He declined to provide any details of the Crown’s funding arrangement.
The Gas Security Fund purpose
The gas fund was established to help repair market damage from the recently reversed offshore oil and gas exploration ban and to help bolster New Zealand’s dwindling natural gas reserves, still needed for consumer, industrial and commercial use, as well as for back-up electricity generation.
Some $140m remains in the fund, unallocated.
Domestic oil and gas producer Todd Energy tapped the contentious $200m fund for $23.5m earlier this month.
Both the Labour and Green parties have vowed to renew the offshore oil and gas exploration ban if returned to government.
The Green Party claims that the fund provides subsidies to energy companies that contravene at least one of New Zealand’s trade agreements.
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