Dry well puts shareholders on the run

Friday 3rd March 2000

By Michele Simpson

Shareholders have rapidly bailed out of New Zealand Oil & Gas after it spent $20 million on a Taranaki well that failed to turn up any oil.

NZOG's shares closed at 30c on Wednesday - having reached a year high of 65c on February 14 - the week exploration drilling started at the Hochsetter well, 120km off the coast from New Plymouth. The company announced this week that it was abandoning the well.

But a dejected NZOG exploration manager Dr Eric Matthews tried to turn around the failure of Hochstetter. "We've now got the data and can build a geographical case for Tui," he said. The potential for the Tui gas prospect is part of the Maui field in the Taranaki Basin.

Analysts were confident the share price would now ease off as most investors who took the 10% chance of striking oil and invested in NZOG for its Hochstetter well have sold out.

"It would be unlikely that shareholders will dig into their pockets again to help fund another expensive one-off drilling campaign," said an industry analyst.

It is thought NZOG may have to farm out its Tui licence before any drilling starts at the field within the next two years. Analysts predict the major exploration companies such as NZOG, Shell, Fletcher Energy and Todd Corporation will have to work together in joint ventures and to minimise the costs involved in hunting for oil and gas.

NZOG had a direct 40% stake in the Hochstetter drilling. Australian Worldwide Exploration took 20% and Pan Pacific Petroleum had the remaining 40%. NZOG has a 57.8% shareholding in Pan Pacific Petroleum.

Hochstetter has cost NZOG and its shareholders, with a 62% investment, approximately $12.4 million. The company was confident of a find at Hochstetter and bucked the industry trend by taking its plans and seismic graphs public.

Several days after drilling started in February NZOG funded a publicity campaign taking journalists, analysts, shareholders and politicians out to the exploration rig.

But the industry believes there are much bigger issues at stake than just one company failing to capitalise on a potential big oil reserve.

The price of oil has continued to rise at $US30 a barrel and the oil companies locally have engaged in a number of price hikes since Christmas.

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