NZOG pitches Kupe sale as diversification play in buyer's market

Friday 16th December 2016

New Zealand Oil & Gas made its final pitch to shareholders to sign off the sale of its 15 percent stake in the Kupe oil and gas field to Genesis Energy for $168 million as the energy explorer and producer looks to diversify its portfolio at a time when it should be able to pick up assets cheaply.

The Wellington-based company's board recommended the deal, which was above the valuation by independent adviser Northington Partners and at the high end of NZOG's own internal valuations, chairman Rodger Finlay told shareholders at a special meeting in Wellington. Shareholders approved the sale, with 87 percent voting in favour.

Some $100 million is slated for a capital return to shareholders and Finlay said he expected the that to be done by May next year, with the balance reinvested in new producing assets with development potential.

In response to a question from a shareholder about the company's strategy, Finlay said:"Implicit in shareholders hopefully approving us selling this asset, implicit in the belief in exactly that team you've complimented, is that we can reinvest much more attractively.

"This is not about selling a dollar for $1.16, which is what our independent expert says we're doing, and reinvesting at $1.50. It's about selling a dollar for $1.16, and with the support of this excellent technical team, buying something at 65 or 70 cents in the dollar."

NZOG has been on the hunt for acquisitions for some time as global oil prices have tanked, prompting energy firms to reassess their portfolios.

Finlay acknowledged NZOG has sat on piles of cash in the past, but today told shareholders it won't do that in the future and will return those funds if it can't find the right opportunity.

"With oil at prices where they're at now, with major participants in New Zealand and some in Australia putting everything up for sale, with the bankers finally giving up on loss-producing fields, if we can't find something to buy at value now, we should give all the money back," Finlay said.

In response to a question by Christine Pullar of the New Zealand Shareholders' Association on whether winding up the company should be considered, Findlay said the board thinks there's more value in team's capability to reinvest the funds from the sale of Kupe.

"Maybe down the road we've got to continue to assess that option, but at the moment we are hellbent on going out and finding good things in a great market for buyers to add even further value to what you might deem as a break-up value," he said.

Acting chief executive Andrew Jefferies told shareholders any new acquisitions will need development and production opportunities. While Kupe's production will remain stable for the next eight-to-10 years, he said any development of that field would be a few years out and need more appetite to explore than the current joint venture has.

"There's probably extra volumes out there, we know about some of them, but we can see they're too small to develop them," Jefferies said. "You need a joint venture willing to go out there and take the risk."

Earlier this week, NZOG said it's considering selling its 27.5 percent stake in the Tui oil field after Tamarind, an energy company backed by Blackstone Energy Partners, agreed to buy the 57.5 percent stake held by field operator AWE for US$1.5 million.

Findlay today told shareholders the Tui offer was "highly conditional" and being analysed by the company team, but like the Kupe sale was unsolicited.

"We've got to think of our position within New Zealand, we've got to think in terms of our joint venture commitments as to the capability of a new operator of that field and its ability to decommission," he said. "Shareholder value will be at the paramount of how we analyse the offer."

The shares were unchanged at 61 cents, having gained 22 percent since the Kupe deal was proposed in November.

BusinessDesk.co.nz

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