Tuesday 18th June 2013
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New Zealand Energy Corp has recut its troubled deal with Origin Energy for a range of onshore Taranaki oil and gas assets, cutting the purchase price by C$9 million to C$33.5 million, dropping one licence area, and assuming management of Contact Energy’s Ahuroa gas storage facilities.
The revised purchase price will see C$30 million paid to Origin, plus a 9 percent royalty on net revenues, and C$3.5 million payment to Contact, which will in turn pay NZEC NZ$200,000 a year to run its Ahuroa gas storage facility. NZEC can buy its way out of up to 4 percentage points of the royalty arrangement by paying Origin an additional C$4.25 million per percentage point.
However, the Ahuroa petroleum licence area has been dropped from the deal, which still includes the Waihapa gas production station and the Tariki, Waihapa and Ngaere onshore Taranaki gasfields.
NZEC made a C$5 million down payment on the assets a year ago.
However, the company has yet to announce how it will fund the purchase, announced in May last year, as it continues to face a funding shortfall of around C$17 million, based on the most recent disclosures from the Vancouver-based company.
NZEC has seen its market capitalisation fall by some 85 percent in the last year “due to missed production targets and capital constraints,” according to Edison International Research’s April update on the sector.
Edison said then that access to capital was “likely to remain challenging” until it could “demonstrate a clear pathway towards establishing meaningful and stable production bases.”
While it has conducted two successful capital-raisings, including C$63.5 million in March last year, it reported last month that working capital had fallen to C$17.4 million at March 31 and that it had used US$27.4 million of a US$34.5 million line of credit.
The latest announcements detail immediate plans to pursue low-cost oil and gas recovery by reactivating and targeting uphole completion of six existing wells in the Tariki, Waihapa and Ngaere (TWN) licence areas.
The newly structured deal also sees NZEC transfer ownership of the Ahuroa petroleum licence to Contact and act as operator of the Ahuroa gas storage facility. Under these arrangements, NZEC and Contact will undertake a six month “gas-looping” trial, bringing Contact gas through the Waihapa production station.
This would be “adequate to commence operating the Wahapa production station, allowing NZEC to process gas produced from its own wells.”
The arrangement will see NZEC sell any additional gas produced through this process to Contact at an estimated price of $4.75 per thousand cubic feet of gas.
“We appreciate the patience of our shareholders,” said NZEC chair John Proust in a statement. “The extended technical review of the TWN licences has identified reserves that will more than quadruple NZEC’s reserve base, plus significant oil and gas resources.”
The newly structured transaction is subject to funding being finalised by Aug. 14, and New Zealand government approval by Sept. 20.
“The company is considering a number of options to increase its financial capacity to carry out the acquisition and other anticipated activities,” said Proust.
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