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Commerce Commission the biggest hurdle for OMV's Shell buy, says Woodward Partners

Monday 19th March 2018

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Austrian oil and gas producer OMV may have to sell down its stakes in the Maui and Pohokura fields to clear competition law hurdles to its $578 million purchase of Shell New Zealand's remaining assets, says petroleum sector analyst John Kidd from Woodward Partners. 

In a note to clients, Kidd says OMV may choose to sell down from the "very high equity positions" it will hold in the two fields both to "dilute portfolio risk" and as "mitigation to Commerce Act concerns". 

OMV will own 93.75 percent of the Maui field and 74 percent of Pohokura, assuming competition, overseas investor, and New Zealand Petroleum & Minerals approvals are granted.

The company's senior vice-president for Australasia, Gabriel Selischi, declined to comment on the speculation.

Kidd said the purchase price looked "buy-side friendly" and "well below the US$1 billion ballpark touted in the market", although the price probably also reflected the fact that OMV is taking on all the costs of decommissioning the Maui and Pohokura platforms when the two fields run down, in 2022 and 2016 respectively on current estimates of remaining reserves.

He speculated that OMV may manage to eke a little longer from the fields because of its "core strength in late-life assets" and "will be likely to bring an investment mandate to them that Shell would probably have struggled to justify".

OMV also likely had a lower cost than Shell, which is quitting New Zealand altogether after more than a century of operations in the country, as part of a worldwide divestment to help fund other activity. It had been seeking buyers for Maui, Pohokura and its interest in exploration licences in the Great South Basin since 2015 and had already spun off its transport fuels distribution business earlier in the decade into what is now Z Energy.

Kidd predicted a "delicate" process of regulatory approvals, particularly as the Maui and Pohokura ownership "would have significant implications for each of the wholesale gas and LPG markets, which is likely to see the Commerce Commission take a detailed look at implications for competition".

"While compared to the counterfactual (likely to be defined as the status quo) the proposal might prima facie reduce competition levels, we think there is a strong case to be made to assert that the proposal is more likely to see additional indigenous gas and LPG brought to market compared to what the counterfactual might deliver," Kidd said.

He noted also that the purchase fitted a new strategic focus by OMV on Australia and New Zealand in an investor presentation last week.

Most of the Austrian company's production assets are in Romania, but it has interests throughout Europe, the Middle East and Africa. Norway is its second largest production source and New Zealand will become third largest once the deal is complete. 

The Woodward analysis surfaced on the same day as Prime Minister Jacinda Ardern told a Greenpeace protest at Parliament that the government is "actively considering" whether to halt future oil and gas exploration.

(BusinessDesk)

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