Costs to hit Oi drilling

Oi-1 expenditure: Costs to rise

Costs are set to jump at the Oi-1 exploration well operated by AWE offshore New Zealand after the well encountered some problems.

The company has decided to drill another well, the Oi-2, to be a shallower well in the same area.

Joint venture partner Pan Pacific Petroleum said costs were set to jump to $44 million, $22.25 million net to the company.

This is an increase of $8.75 million on the original estimate of $13.5 million for the company.

Oi-1 was drilled to a depth of 1507 metres when operational difficulties struck.

Attempts to install cement plugs and sidetrack the well also failed.

The well was drilled using the semi-submersible Kan Tan IV drilling rig.

AWE and its joint venture partners have sealed and abandoned the Oi-1 well.

AWE is the operator of the well and holds a 31.25% interest, while NZOG holds 18.75% and Pan Pacific Petroleum holds 50%.

With costs blowouts at the Pateke well, AWE's current drilling programme is going to be an expensive one.

The company recently announced its gross pre-completion well cost had risen to $99 million, up from a pre-drill estimate of $55 million.

Completion costs are expected to come in at an extra $12 million.

The well also hit problems during drilling, with mechanical drill string difficulties forcing the bottom part of the hole to be abandoned.

Nonetheless, the Pateke well was successful for the company.

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