Contact Energy faces decision to drill

Leading electricity producer Contact Energy may decide in three months if it will get serious and sink some big money into exploring for gas.
If it does, it will still be slower than the state power firms to enter the exploration game.
Rival electricity generator Genesis Energy, a state-owned enterprise, has spent $15 million on funding the drilling of the Cardiff gas prospect and will have a bill of $304 million for its share in developing the Kupe gasfield during the next three years. Kupe gas will fuel a new power station for Genesis.
State power firm Mighty River Power has stakes in five offshore Taranaki exploration permits and has been involved in drilling three onshore Taranaki exploration wells.
Contact has three gas-fired power plants – at Otahuhu, Stratford and New Plymouth – and has contracted gas supplies only till 2010 for those plants. It is also keen to build a gas-fired plant in South Auckland.
Under Contact's offshore Taranaki exploration permit, it is expected to make a commitment to Crown Minerals by the end of September to drill an exploration well by next June or surrender its permit.
The terms of the permit were changed recently. The original permit had required it to make that decision by the end of June this year. Drilling an offshore well can cost more than $10 million.
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The permit now requires Contact to acquire either 100 square kilometres of 3D seismic data or acquire and process 500 kilometres of 2D seismic by the end of September rather than by the end of June.
Spokesman Jonathan Hill said Contact was still interested in pursuing the permit area. Contact had shot the seismic and it was being processed.
"Any decisions regarding drilling wells will be made at the appropriate time. While the market for drilling rigs is tight, we don't think that poses insurmountable problems."
A month ago Contact deputy chairman Phil Pryke said committing Contact to a gas exploration programme would cost several hundred million dollars over several years and involved a lot of risk.
Contact's majority shareholder, Origin Energy of Australia, has a sizable portfolio of exploration permits in New Zealand. Contact has one permit.
It is not clear yet if Contact will decide to leave the exploring to Origin, whose core business is exploring for oil and gas.
Mighty River chief executive Doug Heffernan said Mighty River had become involved in gas exploration for the opportunities that might come up in new gas supply. It was not as big an operator in exploration as Origin or Genesis.
Most of its involvement so far had been in contributing to acquiring and processing seismic data in permits in which it was a stakeholder. It had been involved in the drilling of three onshore Taranaki wells with Swift, a US company that was the operator of the permit.
He said Mighty River had spent about $60 million drilling wells for geothermal exploration for geothermal power plants and less on gas exploration.
Mighty River owns one gas-fired power station – the 125MW Southdown plant at Penrose, which it is expanding by 45MW.