Thursday 4th December 2003
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Sharechat: Why are you doing the IPO at the moment?
Dave Bennett: We have assembled a set of assets that are at this very interesting stage. We've got two development projects in hand, we've got a planned exploration drilling programme, as well as a development drilling programme for the coming year.
It also happens to be a time when oil prices are high and have remained high for some time, when the New Zealand gas market has strengthened hence there has been a lot of interest in the energy sector. Which hasn't been there for some years but is now, so rightly it seemed the timing was very good.
SC: It seems as though the energy sector is one which New Zealand investors haven't had much to do with in recent years and maybe what we are seeing now is a bit of a turnaround of interest in that sector. Is that how you would read it at the moment?
DB: I think so. We lived for a long time in this country under the shelter of Maui and really these things were very low profile and there wasn't the extent of public company interest that there is in Oz where there are lots of oil and gas companies and it is a much more accepted part of the investment portfolio.
But of course what we are seeing now is that you can't think of the gas scene in New Zealand without thinking of electricity. The two are absolutely inextricably locked together and what we are seeing is a situation where there is a demand for gas, a very strong demand for gas, and the price is going up.
The incentive to actually explore and find new oil and gas is very high and New Zealand is generally under-explored.
SC: Let's talk about strategy about how you go about these projects.
DB: We have got a dual strategy. I have tended to concentrate the company's activities on the onshore rather than the offshore. The reasons behind that are that the onshore actual drilling costs are a fraction of what they are offshore and therefore it's easier to get to the point where you realise the outcome of your efforts.
Regarding onshore Taranaki we are exploring for what you would call shallow oil targets, of the type that there have been several discoveries in the Mataro oil field. There has been quite a good success rate where you have 3D seismic data. Earlier this year we acquired the biggest 3D seismic survey yet acquired in Taranaki.
We do now have some offshore blocks, one of them is adjacent to the Pokahura field where we've got a very interesting target.
We have also picked up a block in the Canterbury basin offshore. That basin is hugely under-explored. There is oil and gas there.
Two levels out of four in the offshore were discoveries of some sort and I think that fits into a longer-term part of the portfolio. But the near term is really linked into two basic strategies.
SC Tell me a bit more about this 3D survey?
DB: In an exploration sense it would be the biggest single survey that has been done. And it was oriented towards identifying targets of the Goldie or Mataro type. They are relatively cheap to drill and there is a relatively high success rate. And they do have the virtue that given when you make a discovery you can get it into production in fairly short order
SC: Is part of the strategy to go and find the easy one and then concentrate on harder projects?
DB: In a way yes.
We're now in the nice position where across our set of permits by and large the drilling of shallow wells to perfectly sensible targets has and will hold our acreage in good standing. The shallow oil targets are very good in the event that you make a discovery. A typical discovery will flow between 200 - 700 barrels of oil a day, and if you multiply that by $50, say 500 on average x50, $25,000 worth of oil production a day so that's the ballpark that you are in.
The typical pool size is between half and 2 million barrels so if you find a mid-range thing that is about 1 million barrels and flowed 500 barrels a day you see straight off that you get a very good return on your investment.
This strategy can give us success but it also positions us for the deep gas targets.
SC: From an investor's perspective, how do they evaluate what's a good company or not. Is it promoting acreage and permits?
DB: Investors have to ask do we have the right sort of acreage, are we pursuing the right sort of things and do we have the right sort of expertise and attitude, and then do we have the capability?
We have been exploring in New Zealand now for seven years, we've drilled more onshore wells than any other company. I've been working in Taranaki for the last 20 years and various other people around here are not far short of that mark.
I have been intimately involved with a whole number of the discoveries, so we've got the experience, the right land position, the right permits, and if you look at the Taranaki prospects you will see our acreage holdings are in and around the existing oil and gas fields.
An old axiom of oil exploration is if you want to find oil you go where oil has already been found.
With roughly 12 million shares on issue, after the IPO and will have a market capitalisation of around about $24 million.
If you just run though the sort of outcome of any shallow success, would have implications in terms of value of the company which could be very large,
I think that onshore Taranaki is a good place because of all the infrastructure in terms of pipelines, under-utilised now, and under-utilised production stations - which could handle extra and gas, means that that infrastructure itself lowers the threshold considerably and gives you the basis for looking for further things.
SC What's the level of exploration in Taranaki at the moment?
DB: It's been continuously explored over the years with half a dozen wells or so per annum and that's the sort of level you're seeing now. It is not an area that is over-explored.
If you compared it to a lot of other basins which have comparable reserves in them, Taranaki is a good little basin, lots of oil and gas has been generated and lots of oil and gas has been found. And there is every reason to believe that more can be found.
SC: Have do you convince investors of that?
DB: I think that the discoveries are there to demonstrate that that's the case. The Goldie oil pool is indicative of what we might find in the shallow programme. You get a tremendous return on your investment.
Virtually every deep well at onshore Taranaki has flowed gas or has had very good gas flows and has not necessarily been tested so the evidence is there that you do have the gas reserves in onshore Taranaki.
By applying technology you can turn uneconomic gas discoveries into pretty sizable gas fields with high flow rates.
SC: What can the government do to help the industry?
DB: The Government would say that the loyalty regime for oil and gas exploration is good by world standards, and they'd be sort of right in one sense in there is nothing particularly wrong with the loyalty regime for shallow oil exploration, but when it gets down to deep gas where you're in a whole different ballpark of expenditure and timeframe on actually developing it for market. The government should be looking at things like a royalty holiday because at the moment they take a royalty right from the first barrel or cubic foot of gas produced.
They should be saying no royalties until you get paid back on your investment, that sort of thing.
SC: Is exploration a hit or miss business?
DM: I'd like to think not [laughs]. What you do in exploration is there aren't any certainties. But what you are doing through the whole process, acquiring more seismic and analysing that, and all existing wells and applying the intellect of highly qualified people to all of this is that you're really improving the odds.
In any one exploration well, and even to a degree on any one appraisal or development well, you cant' be certain on the outcome. So there are a large proportion of exploration wells that are unsuccessful. That's reality. But the whole process of working systematically through geological models, further analysis and investment, swings the odds in your favour. That's what you're doing. Hit and miss? I wouldn't say its hit and miss but it is a risky investment. There aren't any certainties. But you can work the odds to your favour.
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