‘Hollywood Down Under’ has growing fan base on world petroleum stage

There’s a saying in New Plymouth that if you can see Mt. Taranaki, you’re in for a perfect day, and if the clouds are such that you can’t, well, you’ll just have to settle for a great day.

The highest peak in New Zealand at nearly 9,000 ft (2,518 m), this snow-capped volcano stands guard over a bucolic countryside dominated by dairy farms, weekend festivals, outdoor sporting events and an infectious laid-back approach to life that would make the more reserved among us reconsider their attitude. Last erupting in 1965, Mt. Taranaki on the North Island bears a remarkable resemblance to its Japanese sister Mt. Fuji, so much so that it has been the location for a host of adventure films ostensibly set in feudal Japan.

In fact, so-called Hollywood Down Under has become a favorite of the film industry, attracting many would-be productions that otherwise would have been filmed in neighboring Australia, if an overnight flight can be considered going to visit a neighbor. “The Lord of the Rings” trilogy, “Whale Rider” and “The Last Samurai,” the last of which made a local hero of American actor Tom Cruise, were all filmed entirely or partially around Mt. Taranaki, the namesake of the region that includes New Plymouth.

On the surface, picturesque and pastoral New Plymouth may appear to be one of those relaxed farming communities where local conversations are dominated by milk futures and what fish is hitting what fly. However, Paul Gwynne, one of two dedicated project engineers for M-I SWACO New Zealand operations, said looks can be very deceiving. “There is something going on here every weekend. For instance, this year we had a global triathlon that brought in thousands of people.”

While New Plymouth and New Zealand in general are dominated by tourism and all things agriculture, the long and narrow twin islands that comprise the country have deceptively rich oil and gas resources. It most definitely has come a long way since the late 1880s when the Taranaki Provincial Government offered explorers a bounty of 400 pounds for “the discovery of a spring of petroleum sufficiently copious to be profitably worked.” Today, Tui, Maari, Barracuda, Barque and Pohukura are among the fields that have become well-known names in the global petroleum community, drawing the attention of the likes of Shell, OMV, Australian Worldwide Exploration Limited and others.

Though the local M-I SWACO operation will never be confused with the larger country operations in the company’s global network, it most definitely does a great deal with what it has. Country Manager Dave Knox said the operation has a total of 20 employees, including full-and part-time drilling fluids specialists, Gwynne, fellow Project Engineer Gary McVey and himself. That team is responsible for providing fluids and Environmental Solutions-related products and services to three offshore rigs drilling some of the most technically and environmentally demanding wells in the world. There’s also the matter of making sure the 8,000-bbl synthetic-based drilling fluid plant in New Plymouth maintains sufficient products for operators working in the country.

“With all the coal seams and volcanic activity, the drilling environment here can be very complex. The reservoirs are quite compartmentalized. There’s some very challenging stuff here. There is very little in the way of straightforward drilling here,” Knox said.

For example, he said if an operator encounters the limestone formations typically found around 13,120 ft (4,000 m), which forces most to sidetrack, “they could lose everything.” He noted wells drilled off the eastern coast are highly pressurized, requiring up to 18 lb/gal drilling fluid.

Sounding like a de facto company spokesman, Todd Energy Drilling Manager Joop Verbeek said while the operation may be relatively small, its technical accomplishments have been enormous.

“M-I SWACO is our contractor of choice for technical solutions and engineering support. M-I has been a great supporter in helping me do my job. Today, we are drilling wells 30% to 50% faster than we were in the nineties, and M-I played a big role in that. They have done a great job for us and made breakthroughs in fluids that have had the biggest impact on our improved performance,” Verbeek said.

“The Mongoose* shakers also have been exceptional. Overall, the quality of the equipment and the quality of the engineering make it easy to justify the use of M-I SWACO,” he added.

From all indications, there unquestionably will be no shortage of opportunities for operators willing to take on the technical and environmental challenges. “There’s a lot of undrilled potential here. For example, there’s much potential for tight gas between 3,500 and 4,400 m deep,” Verbeek said.

With the exception of an occasional geothermal well, onshore activity has slowed appreciably with more and more operators attempting to tap the tremendous potential of the North Island’s offshore theaters.

“The land work is quiet now and it tends to come and go,” Gwynne said. “They (operators) tend to throw it at us at the last minute. There is a great deal of talk now about high (land) potential in the South Island.”

Onshore activity on the North Island also is poised for a substantial turnaround as the New Zealand government encourages more investment in the Taranaki basin, which has been a focus of exploration for more than 140 years and remains the nation’s premier petroleum production acreage. The government recently added three new blocks for leasing, bringing to 12 the total number of blocks available in the onshore Taranaki basin offering that began in November 2007.

“With oil prices at near record levels, it is important that we maximize the potential for new exploration investment,” New Zealand Associated Energy Minister Harry Duynhoven was quoted as saying in a February 2008 supplement to Oil & Gas Australia.

“The blocks offered will provide significant opportunities to discover and develop new sources of gas for domestic use, as well as oil to assist New Zealand’s energy future and economic growth.”

“Land work was pretty steady here, but now everything is moving offshore,” Knox said. “The indications are it will pick up as stuff is coming in, but it will be a matter of time. Over the past two years, the government has really pressured operators to develop their (onshore and offshore) wells.”

In the meantime, Maui, Tui and other offshore fields are more than picking up the slack until the expected increase in onshore activity. Earlier this year, the International Herald Tribune also quoted Duynhoven as saying that operators OMV and ExxonMobil will spend upwards of US$934 million exploring for new fields offshore the Great South basin.

“The intensity of work proposed for the Great South basin is unprecedented in New Zealand’s history and will effectively double the amount of investment in oil and gas exploration here over the next few years,” he was reported as saying.

Since Maui, which has been producing for 30 years and has accounted for as much as 80% of the nation’s natural gas, peaked in 1997, New Zealand’s overall production has been in decline. A reversal appears in the making as four major projects—Pohukura, Tui, Maari and Kupe—are predicted to reach peak production in 2010, delivering some 140 million bbl of new reserves to the market.

Maui aside, Tui stands as one of the most prolific and successful developments in New Zealand. The four current wells in the Tui development were expected to produce a combined 16,000 BOPD, but are churning out 46,000 BOPD even after being choked back to accommodate the capacity of the floating offshore production unit. Last October, it was reported that the field had flowed about 2.4 million barrels in just two months of operation.

According to Oil & Gas Australia, Tui contributed considerably to operator Australian Worldwide Exploration (AWE) Limited’s record 2.65 million barrels of oil equivalent produced in the fourth quarter of last year. The 24% increase over the previous quarter allowed the operator to eliminate all corporate debt, AWE Managing Director Bruce Wood was quoted as saying.

“The drilling of Tui went very well. What was really remarkable was that the field went from discovery to production in four years,” Knox said.

International operator OMV also plans to contribute to the nation’s production rate with its Maari development, which likewise is located offshore Taranaki. The development will include a total of eight wells, including six producers—one lateral—and two water injectors. All of the wells are horizontal with an average 6,560-ft (2,000 m) reach.

“Maari will be big for us,” Knox said. “It’s a very challenging project as they’ll be drilling from a platform through faults. A second lot of appraisal wells is also planned with coiled tubing using Warp* (Advanced Fluids Technology).”

One of the more challenging projects is the Pohukura gas field off the West Coast of the Taranaki basin. Operated by Shell Exploration New Zealand Ltd., the Integrated Fluids Engineering* (IFE) operation includes nine offshore and onshore wells. The development includes extended reach directional (ERD) wells drilled to a regional record measured depth of 24,309 ft (7,409 m) on the POW 03 structure, the longest ERD well in the field. In fact, the field includes some of the longest ERD wells ever drilled in Southeast Asia.

Knox, Project Engineer McVey and Australia Project Engineer Don Pritchard joined forces with Shell’s Iain Parr and Jonathon Davies in preparing a paper for the 2008 IADC/SPE Asia Pacific Drilling Conference in Jakarta, Indonesia, that illustrated the technical and environmental demands inherent in the project. The tight gas field, which is believed to hold 50% of the known reserves in New Zealand, included one injector and three production wells at an onshore location and five producers, including one dual lateral, from a jack-up rig.

“Due to the location and nature of the field, all development wells were characterized by tortuous well paths through the reactive and dispersive shales of the Taranaki basin,” Knox, et al., wrote in the paper “Onshore and Offshore—New Zealand Gas Development Sets New Performance and Environmental Milestones: The Role of Drilling Fluid Selection and Performance in the Pohukura Development.”

The granddaddy of them all, however, remains the Shell Todd Maui field that after three decades of production “keeps chugging along,” Knox said, adding, “Maui has been our bread and butter.”

With all the technical demands, it comes as no surprise that operators are very receptive to new technologies like Warp. All of the company’s solutions offerings are represented here, including the latest centrifuges, Specialized Tools* and the Verti-G* Dryer. Knox said there also are potential applications for the produced water technology of Epcon Offshore, particularly in the Tui development.

“Reception to new technology here is excellent,” Knox said. “We get involved early and build up a level of trust. A lot of the technologies they (operators) are using now are from work that we did here earlier.”

It likewise comes as no major revelation that environmental issues in this agriculture and tourist stronghold always take center stage. Knox said the Agricultural and Fisheries Ministry has strict rules that mandate any rig entering New Zealand must be clean of all foreign marine life. “Dirt from a work boot could make or break a project,” he said half seriously.

Obviously, any offshore discharge is a strict no-no, and until not that long ago, all these demanding well paths had to be created with water-based drilling fluids, as invert-emulsion fluids were not welcome. According to Todd’s Verbeek, the local M-I SWACO operation helped change that.

“We were looking at ways to improve drilling performance around 2000, and at the time M-I was using a synthetic-based drilling fluid (SBM) off the East Coast, so we started looking at it.

We needed something biodegradable, because at the time oil and synthetic fluids had a bad reputation in the country. M-I provided an SBM solution, solids control and local engineering know-how. Now, I don’t need to spend 20% of my time dealing with waste issues. If we had remained forced to use water-based mud, our progress would have been far different,” Verbeek said.

The eyes of the petroleum environmental world were also focused clearly on work developed by the local M-I SWACO operation. Upon the introduction of the Paraland* paraffin-based fluid system, which was used quite successfully on the Pohukura development, the New Plymouth operation spearheaded a development that would exploit bioremediation to convert drill solids waste into a reusable resource. The agriculture industry long has used bioremediation to recycle animal and plant waste, transforming the by-product into an organic fertilizer rich in nutrients that can be reused to fertilize crops or sold as mulch. However, this marked the first time the process was used for drilling fluids.

Armed with the Paraland system, M-I SWACO partnered with waste disposal facility Uruit Composting outside New Plymouth to use vermiculture, or earthworms, to bioremediate hydrocarbons to eliminate waste. After initial treatment with the earthworms (all US$1 million’s of them), the product is delivered to the Brixton Organic facility in New Plymouth for final processing before eventually being sold as commercial fertilizer for garden centers and the like. The material is sold throughout New Zealand, and the Taranaki local council employs the final product for all of its landscaping.

“Vermiculture has been around for other wastes, but this is the first time it has been used for drilling solids. It’s been very successful for us,” Knox said.

Gwynne added that the area itself plays a major role in that success. “This is a great process, but it has limited applications elsewhere. The climate cannot be too hot or too cold. The temperate weather here works very well,” he said.

Technical and environmental requirements aside, it goes without saying that logistics and associated costs can put a damper on the level of activity. New Zealand’s location southeast of Australia in the middle of the Pacific Ocean and a scant two-hour plane ride to Antarctica makes getting products into the country a daunting exercise.

“Most places would laugh at three offshore rigs, but that’s all the infrastructure can accommodate now,” Knox said. “Logistics is a nightmare here. You have to be clairvoyant, as it takes 15 weeks to get anything from Houston and eight weeks out of Singapore. On top of that, some operators will decide to drill overnight.”

Testament to the paramount need to keep sufficient inventory on hand is the storage capacity of the New Plymouth facility that includes a main 1,364 m2 (14,682 sq ft) covered warehouse, 4,505 m2 (48,492 sq ft) outside storage space and another 8,200 m2 (88,265 sq ft) warehouse adjacent to the office. “The liquid mud plant M-I has is a very professional facility and is an investment that shows how seriously they take their business,” Verbeek said.

Knox said that here at the “end of the world,” M-I SWACO is not the only company dealing with head-scratching logistics issues. “When you’re off the beaten path like we all are here, everybody relies on everybody else. We have a very close-knit (petroleum) community so everybody pulls together.”

That also goes for costs that have soared through the stratosphere, not just here but everywhere. “This is a very expensive place to work. KCL, for example, is in short supply and has more than doubled (in price) in one year. We are looking at alternatives for both KCL and glycol, which also is in short supply and very expensive. Fortunately, the operators here are willing to accept the higher prices if you can justify them,” Knox added.

Despite all the challenges and the ups and downs of the market, M-I SWACO has maintained a presence in New Zealand since the 1980s and Knox said the company has no intention of exiting the stage. “The operators want companies who’ll stick around even in the lean times, so we don’t plan on going anywhere.”