NZOG ponders how to spend war chest as Tui keeps pumping

By NZPA

Tuesday 29th April 2008

Oil explorer NZ Oil and Gas (NZOG) is pondering how to spend hundreds of millions of dollars in its expanding war chest, and may be forced to look beyond New Zealand.

With the Tui oil field production levels steady instead of tailing off as expected and oil prices hitting record highs, NZOG reported March quarter revenue of $58.2 million, lifting revenue for the nine months to $153.7 million, including $141.8 million from the Tui oil field.

Forecast annual revenue is around $200m compared with total revenue two years ago of just $7.5m.

"Tui has really turned into a Superman field for us -- bigger, higher and faster than we expected," said NZOG spokesman Chris Roberts.

The price of oil had been around $US30 ($NZ38.70) a barrel when the field was sanctioned and $US65 when production started. Now benchmark Tapis crude was around $US125 a barrel.

With Tui production averaging around 44,000 barrels a day when it was expected to be about 17,000 barrels a day, field operator AWE will review the field reserves given how far above forecast the production rate was. A report was expected by the end of June.

NZOG owns a 12.5% stake in Tui.

Other companies involved are AWE New Zealand Pty (20%), New Zealand Overseas Petroleum Pty (22.5%), Mitsui E & P New Zealand (35%) and Pan Pacific Petroleum (10%).

After paying the second dividend in its history this month, and after expenses, at the end of the quarter NZOG had a cash balance of $45.9 million.

NZOG said it would consider another dividend next financial year, if there was enough cash to meet its other requirements.

The company expected a solid take up of its 139 million options by shareholders by June 30, with the conversion price of $1.50 against NZOG's share price around $1.60.

In the unlikely event that all the options were taken up, NZOG would have an equity injection of $208 million, for which it was developing plans.

"If the option money comes in on a large scale, at $100m plus, that may force us to start looking abroad in terms of the scale of opportunities that we need," Roberts said.

A full take up of options would boost NZOG to around 17th-largest company on the stock exchange from 27th currently, and 34th at the end of last year.

It would probably be one of the largest capital raisings on the NZX this year, and was a big deal for the company, said McDouall Stuart energy analyst John Kidd.

NZOG was riding high on Tui's performance at a time of record oil prices, but how the company invested its cash would be vital.

"The challenge is definitely there for NZOG to step up and prove that what's next will continue to add value, like has been achieved with Tui," Kidd said.

The company had considered Swift Energy's oil and gas assets that were sold to Contact Energy and Origin last year for about $115m, but they did not make commercial sense.

Elsewhere on its books, other permits in the Taranaki basin contained Tui look alikes, which NZ Oil and Gas was aiming to include in a drilling campaign next year if it could secure a rig.

NZOG also said today that the Kupe Project had made significant progress and was now over two-thirds complete.

The Kupe joint venture, in which NZOG owns a 15% stake, was planning to start drilling in May at Momoho, 6km south of the Kupe gas field and within the Kupe permit area, using the Ensco 107 drilling rig.

Pike River Coal, in which NZOG had a 31% stake, was benefiting from even greater price rises in coal, due to strong demand for steel, the end use for Pike River's coking coal.

NZOG shares closed down 2c at $1.58, having traded between 93 cents and a record high $1.64 in the last 12 months.

Comments from our readers

No comments yet