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NZ Energy Corp facing funding challenge on Origin assets purchase

Thursday 11th April 2013

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New Zealand Energy Corp, one of two Vancouver-based companies producing oil and gas in Taranaki, faces a shortfall in funds to buy C$42 million of assets from Origin Energy as overheads soar and cash reserves dwindle.

NZEC entered the New Zealand energy scene in late 2010 and struck oil and natural gas with its first Taranaki well, Copper Moki-1, in early 2011. It built on that with further Copper Moki wells and smaller strikes at the nearby Waitapu and Arakamu fields.

It produced just over 155,000 barrels of oil for the year to September, generating cash flow of C$11.9 million, and holding cash reserves of about C$43.8 million at that time. However, its net working capital position had plummeted to about C$16.8 million by late February, according to the company's website, and is less than that now because of continuing overheads, exploration and production expenses.

The company's deteriorating position leaves a question mark over its agreement in May 2012 to buy most of Origin's onshore Taranaki assets, including the Waihapa production station and associated infrastructure, as well as the Tariki, Ahuroa, Waihapa and Ngaere (TAWN) petroleum mining licences.

The reduction in working capital leaves the company with a projected shortfall of about C$26 million to complete the Origin deal, suggesting NZEC may undertake what would be its third capital raising, or take advantage of a debt-free balance sheet to gear up.

"We have a number of options we are maturing to finance NZEC's short-term operating cash-flow requirements going forward," New Zealand country manager Chris Bush told BusinessDesk. "It would be inappropriate for me to comment further at this time."

Chief executive John Proust recently said NZEC was considering options including increasing cash flow from oil production, credit facilities, joint ventures, commercial arrangements or other financing alternatives.

NZEC listed on the Toronto Stock Exchange in August 2011, raising just over C$21.9 million in its initial public offering.

The company raised almost C$63.5 million in March 2012, though its market capitalisation has tumbled over the past 12 months, with its shares falling from a peak of C$3.19 to as low as 33 Canadian cents, wiping about C$350 million off the value of the company. Its shares are currently trading in a range of 37 cents to 40 cents.

Overheads at the company have climbed as it hired additional executives and field staff, and opened offices in Wellington and New Plymouth.

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