PETROCORP ACQUIRING N.Z. SYNFUELS PLANT STAKE

July 16, 1990
Petroleum Corp. of New Zealand Ltd. (Petrocorp) has agreed to acquire New Zealand's majority interest in the world's first commercial natural gas to gasoline project at Motonui, N.Z. The complicated deal, earlier valued at $260 million (U.S.), has taken more than a year to negotiate (OGJ, Mar. 13, 1989, p. 38). The New Zealand government will pay Petrocorp about $120 million (U.S.) to take over its 75% stake in the financially beleaguered project on North Island.

Petroleum Corp. of New Zealand Ltd. (Petrocorp) has agreed to acquire New Zealand's majority interest in the world's first commercial natural gas to gasoline project at Motonui, N.Z.

The complicated deal, earlier valued at $260 million (U.S.), has taken more than a year to negotiate (OGJ, Mar. 13, 1989, p. 38).

The New Zealand government will pay Petrocorp about $120 million (U.S.) to take over its 75% stake in the financially beleaguered project on North Island.

As part of the deal, Petrocorp has prepaid the government $150 million (U.S.) to lock in offshore gas supplies and prices under an existing contract.

The deal is the latest in a series of moves by the reform Labour government to privatize state owned enterprises.

For former part state owned Petrocorp, the deal enables it to respond to opportunities in burgeoning methanol and gasoline markets.

The New Zealand government sold its 70% interest in Petrocorp to Fletcher Challenge Ltd., an international pulp and paper group that is New Zealand's biggest company, for $1.175 billion (U.S.) in 1988 (OGJ, Mar. 21, 1988, p. 28).

BACKGROUND

The government has incurred losses of about $2.06 billion (U.S.) through its 75% stake in the venture through the holding company New Zealand Synthetic Fuels Corp.

Mobil Oil New Zealand Ltd., plant operator, holds the remaining 25%.

Mobil Oil Corp. developed the catalyst at the heart of the conversion process, which involves converting natural gas from Maui offshore field to methanol and then to gasoline.

The project has a two train methanol plan that processed an average 148.6 MMcfd of Maui gas and produced about 4,110 metric tons/day of methanol for conversion to about 12,680 b/d of gasoline in 1989.

At an installed cost of $1.475 billion (U.S.), the 14,500 b/d design capacity plant was intended to cut New Zealand's oil bill by $300 million (N.Z)/year and help the country achieve its goal of 50% self-sufficiency in transportation fuels (OGJ, Aug. 26, 1985, p. 38). Instead, it has been losing about $300 million (N.Z.)/year.

FINANCIAL PROBLEMS

The government's losses reflect the exposure to the synfuels project's debt repayment.

The project's major credit agreement involved a 1982 loan facility of $1.7 billion arranged by Citicorp International with a group of 42 banks.

The last repayment installment on that loan was to come due in December 1995, but the government recently made that payment.

Other liabilities involve export credits on equipment at 8.75% and a $100 million (U.S.) Euronote facility at 8.9125% plus margin.

Interest payments have been running about $60 million (U.S.)/year on the total debt.

Further, the project has had chronic operating losses for the government due to shortfalls in the levels of gas processing fees set on the assumption of higher oil prices.

Mobil, however, has not incurred any debt liability on the project. The company's exposure relates to plant performance, which has been profitable. The synfuels plant had record production levels and further pared production costs in 1989.

Mobil will continue as operator.

OTHER DETAILS

The government will remain sole take or pay purchaser of gas from Maui Development Ltd., a combine of units of Petrocorp, Royal Dutch/Shell Group, British Petroleum Co. plc, and Todd Petroleum that operates Maui field.

The government also will continue to sell natural gas processed at the plant to four downstream buyers. Two of those, Natural Gas Corp. (NGC) and Petralgas, are Petrocorp units. A third, NZ Liquid Fuels Investments Ltd., becomes a subsidiary as part of the asset sale and will contract to purchase from the government gas processed at the synfuels plant. The fourth buyer is Electricorp.

Petrocorp immediately prepaid the government $150 million (U.S.) as part of the total Maui gas allocation to NGC to lock in supplies and prices set for the remaining contract to 2009.

NGC supplies gas to industrial and residential users throughout New Zealand's North Island. Petralgas operates a world scale, chemical grade methanol plant near Waitara in northern Taranaki province.

"Purchase of the crown's interests will enable Petrocorp to integrate the operations of the Petralgas and synfuel plants and to take advantage of opportunities in the methanol and gasoline markets," said Bill Falconer, managing director of Petrocorp.

Petrocorp also plans to add distillation capacity at the Petralgas plant and lay a methanol pipeline to the synfuels plant to enable it to boost chemical grade methanol production at the Waitara plant by 435,000 metric tons/year, Falconer said.

Copyright 1990 Oil & Gas Journal. All Rights Reserved.