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NZOG 1H loss nosedives on Tui, Maari writedowns; cost-cutting now at boardroom level

Monday 29th February 2016

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New Zealand Oil & Gas, whose chairman Peter Griffiths unexpectedly resigned this month, widened its first-half loss as it wrote down the value of its Tui and Maari investments and switched its accounting policy to cope with a cheaper oil environment. 

The Wellington-based company posted a net loss after minorities of $27.6 million, or 7.9 cents per share, in the six months ended Dec. 31, compared to a loss of $7.7 million, or 1.8 cents a year earlier.

The latest loss included an $8.7 million impairment charge on the Tui oil and gas field and a $26.8 million charge on the Maari field after NZOG moved to a "successful efforts method" of accounting, which recognises all general exploration and evaluation costs as expenses as they're incurred, except direct costs of acquiring exploration rights, drilling wells, and evaluating results. Costs of successful exploration are capitalised as assets pending the outcome of a well and those costs are immediately expensed if there isn't a successful discovery. 

Revenue rose 21 percent to $65.4 million as Cue Energy Resources made a bigger contribution after being taken over last year, helping offset declines from NZOG's Tui and Kupe investments. 

NZOG has adjusted its corporate strategy to deal with oil prices falling to the US$30 a barrel range from US$50 when it last reported and new chairman Rodger Finlay said the company intends to focus on cutting costs. That will stretch all the way to the boardroom, with directors' fees set to drop by about 30 percent because Griffiths will not be replaced. 

"Exploration costs have been minimised with no intention to spend further on exploration beyond our contractual obligations," Finlay said. "The board intends to manage capital carefully and retain only capital needed for the company's strategy." 

NZOG's operating cash inflow climbed 40 percent to $31.7 million in the period, leaving it with cash and equivalents of $94.5 million as at Dec. 31. Chief executive Andrew Knight has previously said the firm is looking at acquisitions to take advantage of any bargains that might arise from the globally depressed oil price. 

"Despite the write-downs of asset valuations, the underlying business is performing well and is cash positive with a strong balance sheet," Finlay said. "I expect to see improved performance as costs are cut and growth through acquisition as assets come to market at value." 

The shares last traded at 43.5 cents and have increased 2.4 percent so far this year.

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