I shall endeavour to find the source & post it.
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Here are some relavent bits from AMR's directions:
Oil & Gas Weekly
2 March, 2008
Week’s Highlights
Some pleasing results not least those of Australian Worldwide Exploration
and New Zealand Oil and Gas who benefited from four and a half months of
production from Tui area oil field in the December half. The results indicated
just what a success this field has been. In just under seven months Tui has
produced nine million barrels of oil.
Tui has catapulted New Zealand Oil & Gas from another struggling junior to
a mid cap explorer and producer with results and reserves rivalling those of
Tap Oil and Arc Energy.
The market still hasn’t got the message how good Tui is and the impact it is
having on cash flows for AWE, NZO and PPP.
Pan Pacific will have its day in the Tui sun next week when it announces
Wednesday its December half results.
Tui oil field delivers for NZO.
New Zealand Oil & Gas December Half Results
On Wednesday NZO reported their interim half year results to December 31
sparking a significant breakout in the share price as the market begins to
realise what we have been saying for the past several months.
That this company (and PPP) has very significant cash flows from Tui. And
NZO has two further projects closing in on production at Pike River and
Kupe and its shares are fundamentally undervalued.
Our NZ correspondent participated in an analysts’ conference call after the
result was announced and had the following to say: “Wow, what a minter interim result from NZOG on Wednesday. And the 5
cents fully imputed dividend (for NZ shareholders) was a cruise missile that
landed a direct hit on its target – the NZ investing public and as I write this
the shares are now NZ$1.31.
By now you will be aware that they announced a NPAT of NZ$41m from
turnover of NZ$91m. This equated to 15.7cps earnings for the 6 months.
Some points from the conference call worth noting:
The NZ$140m of tax losses reported in the 30 June 2007 accounts,
only NZ$85m of these are available for use in the 30 June 2008 tax
year. The $85m of losses are almost exhausted already and NZOG
will be paying provisional company tax in March, so the April
dividend will carry imputation credits accordingly.
The 5cps dividend is not an interim dividend, more a dividend to
cover the whole financial year ending 30 June 07. The company
intends to pay a reasonable proportion of profits each year as a
dividend, but CEO David Salisbury (DS) said it was difficult to set a
hard and fast dividend policy when faced with so many changing
variables inherent to the oil business (ie. oil prices, capex
requirements, changes in production etc). Fair enough.
Momoho target yet to be
quantified.
when asked the potential size of the Momoho drill DS said the JV was
not yet agreed on these figures and they will announce them when
agreement is reached. Costs to drill Momoho looks to be around
NZ$10m.
DS was asked whether successful Kupe development drilling would
lead to a reserves upgrade and he replied that the analysis of such
drillings is complex and can take several months to process and
analyse. If such an upgrade was required, this information would not
be known until towards the end of 2008 at the earliest.
DS advised that the Tui facility has continued to produce at 45,000
bopd and they had started to see some recent increase in water cut, but
not to the point where oil production was decreasing at this stage.
When asked to upgrade production figures to 30 June 2008, he stuck
to the JV line of 12 million barrels.
DS noted very clearly that the company is completely fully funded
based on current cash flow forecasting (barring a problem at Tui) and
also with the debt facilities it has in place in all of its capex
commitments at Kupe and also its Pike River rights issue
participation. There is no need to raise additional capital. I would
suggest this goes without saying that if they are able to paying a large
dividend of 5cps, then they are fully funded.
DS noted that although Kupe has been developed as a gas project, that
at current oil prices the liquids from the project currently represent
two thirds of the estimated revenue of the project.
Also, when asked as to whether a discovery at Momoho has a market
for its output, David noted that the liquids would be sold as normal,
but any additional gas may be able to supply the gas to liquids plant
in Taranaki that Methanex had recently decided to bring out of
mothballs..
Whilst not being an oil trader, he personally does not see the price of
oil dropping significantly in the near future and that current supply is
very stretched to meet existing demand.
They do plan to drill further wells on their Taranaki licences in 2009,
subject to joint venture approval, appropriate targets being assessed
and rig availability. He noted that rig availability is a key issue in the
industry at present.
When asked whether there are any further Kupe costs increases in the
pipeline, he stuck with the JV figures of 10% above the $980M
official JV figures as being the latest information.
It sounds like there is a contingency number built in there somewhere
and it has been noted in the past most of these costs are denominated
in US$ and the weaker US$ would be assisting the sums in this
respect.
That all sounded good to me.
Certainly it resulted in some very good press in the Thursday morning NZ
papers and the results also featured on both main NZ news channels on
Wednesday night.
Also, Tui exports are positively influencing the NZ monthly trade figures and
these figures are released worldwide in most money markets I would imagine
and Tui gets a mention every time, month after month.
I have a personal opinion of what I think is in store for NZO in the medium
term. Readers must note that these are my views and it is up to them to form
their own opinion as mine could well be wrong.
We are all ‘big boys and girls’ so you have to make your own calls on this
(the last time I used ‘big’ and ‘girl’ in this particular expression in a
conversation with my girlfriend, she didn’t speak to me for a week, so be
careful who you apply this to):
It certainly begs the question that if Tui has produced significantly
ahead of expectations and continues to do so, could this (or should
this) lead to another reserves upgrade?
Having all seen the AED debacle at Puffin, I think the JV is being
very conservative in its production and reserves forecasts and perhaps
a de facto upgrade exists in there somewhere, but it is very unlikely
the JV will officially acknowledge that (and certainly I must
emphasise that NZOG is towing the JV line on this front, as they
should).
Bear in mind none of us are reservoir engineers, so we are guessing,
but I know which way I am leaning. It could simply be a case that a
higher percentage of the oil in place is recoverable than first thought. I
fully understand the JV’s desire not to spruik the market in this
respect. We have to make our own judgements on this. They may
never give such an upgrade (if indeed it is required at all), but the cash
outcome of this could well end up sitting in their bank accounts
eventually.
Similarly, if the Kupe development drilling goes according to plan
and the current assessed reserves are confirmed, then the de-risking of
the development would be worthy of a higher share price.
Furthermore, given that Origin is leading this project and given the
debacle at BassGas that they were associated with, does it further beg
the question that these reserves may themselves also be on the
conservative side? It is probably foolish to extrapolate the Tui
experience across to a different project at Kupe, but if the
development drilling there is successful, I suspect this may also give
potential for a reserves upgrade down the track somewhere.
Bear in mind the Momoho prospect is only 5km from the Kupe
platform and in the offshore oil business that is no more than a walk
down to the shops. We need to be very cognisant of the fact that if
Momoho discovers the same gassy liquids in commercial quantities,
then having already spent the capex at the Kupe facilities both on and
offshore, the minimal additional cost to produce a discovery like this
could be very significant to the economics of the whole Kupe project.
For a $10M risk, the return to NZOG of a decent size success at
Momoho could be many many multiples of the cost to drill this well. I
would call this a “wildcat with nearby infrastructure” rather than just a
straight wildcat. I do not think the market has grasped the significance
of this yet.We all seem to be dancing in the streets with the success of
Tui. This is however overshadowing the point that Kupe looks like it
will be at least as big as Tui, if not bigger.
6
So really NZOG has two groundbreaking projects and only one of
them is up and running at present, yet on its own has delivered a
stellar result.
We need to really think what this could do to the company results
when (an albeit reduced) Tui revenue and new Kupe revenue is
produced in the same year. Just close your eyes for a minute and think
about that.
The coal price assumption used in the Pike River Coal prospectus was
US$95 a tonne. There are reports in the press that this figure could
well be set at US$150 a tonne for the current contract year starting 1
April. Notwithstanding an increase in the number of PRC shares on
issue as a result of the current rights issue, an increase in your main
revenue variable from $95 to $150 can only lead to a significant
increase in earnings.
Bear in mind PRC is a one project company and I cannot personally
myself see it expanding into anything else, so once it is on top of it
debt obligations, then that would have to be a pretty chunky dividend
flow that its shareholders would be getting and NZO owns 31% of this
company.
Disclosure of interest: I am both a NZOG and PPP ordinary shareholder.
Making a million dollars.
Our Quest to Make a Million Dollars
Our goal is to take a specific sum of money and double it a number of times
to make $1 million before tax. $10,000 doubled eight times will do the trick.
A $20,000 initial investment needs to be doubled seven times, a $40,000
investment six times.
We have three Portfolios in the program.
Our initial Portfolio A investment was 150,000 New Zealand Oil & Gas
Options (NZOO) purchased at 7 cents. We bought a further 200,000 NZOO at
4.4 cents when the market bombed adding 200,000 options and an additional
$8,800 to our original investment to bring our initial outlay to $19,300.
With NZOO closing at 5.9 cents on Friday our investment was worth
$20,650 now up $1,350 on our combined total stake. The volatility in New
Zealand Oil & Gas options is just something one has to contend with, when
you believe as we do that eventually the underlying value in the head shares
will be appreciated. Just has to happen before 30 June next!
Our Portfolio B investment was 500,000 Pancontinental shares (PCL) at 4.2
for an original stake of $21,000. PCL shares closed at 2.8 cents on Friday
making our stake now worth $14,000.
So we are now well off the pace with this choice. PCL is now at a four and a
half year low. What is concern to us is that the market may be getting the
message Origin will not take up its drilling commitment in PCL’s offshore
Kenya leases.
Our Portfolio C investment was 40,000 NZO head shares at $1.02. They
closed Friday at $1.14 so we are making some head way here with hopefully
a lot more to come. as the market starts to re-rate this overlooked NZ oiler.
7
Development well drilling at the Kupe Gas project in PML 38146 offshore
Taranaki Basin is at the business end.
Operator Origin Energy is batch drilling the last sections of the three
development wells.
The first of the those wells intersected the primary reservoir (Farewell
Formation – what an unfortunate name!) late last week and was preparing to
drill ahead to total depth after completing coring operations.
Now if the JV has its wits about it it will announce good gas and oil flows as
each wells progresses to target depth. The great unwashed in punter land
can’t tell the difference between an offshore oil/gas development well, a rank
wildcat and coal seam gas core hole. To them if a well flows oil and/or gas it
has got to be good.
So if New Zealand Oil & Gas, with its 15% interest in Kupe, wants to get its
share price up to a level that truly reflects its fundamental value, making sure
it extracts the maximum value out of the three Kupe development wells
should do it. And the sooner it gets its price up the less attractive it becomes
to a would be predator.
New Zealand Oil & Gas discovered the Kupe field way back in 1986 with
the drilling of the Kupe South #1 wildcat which flowed 2,000 barrels of light
oil a day and 5.4 million cubic feet of gas a day.
Kupe South #2 and Kupe South #3 and #3A ST followed in 1987 and 1988
respectively. Both encountered a stratified hydrocarbon reservoir with a
significant oil column underlying a thick natural gas column. These three
wells form the basis for the current Kupe Central Field area development.
But there’s more. Kupe South #4 and Kupe South #5 both wildcats, were
drilled on separate prospects adjacent to the Central Field Area and both were
either oil and or gas discoveries. Toru #1 well was drilled 10 kms to the north
of the Kupe CFA and it too was a gas discovery.
Now the JV will drill Momoho #1 an exploration (wildcat) well testing an
overlooked structure in what we understand to close proximity to the Kupe
Central Field Area. Got to deliver one would think in the light of what has
gone before. Then there are two other prospects also adjacent to the CFA to
test, Denby and Leith. And several more mapped prospects on the permit yet
to be named.
Low oil and gas prices and the huge Maui gas field near to Kupe delayed the
development of the Kupe field. But that situation has now changed
dramatically. Maui is in decline. Kupe is in the ascendant. Gas prices in New
Zealand are on the rise and the oil price is breaking new records.
If you think Tui is a big money spinner for NZO and it certainly is, Kupe is
even bigger. Currently 2P reserves are 250 Bcf of gas and 14.7 million barrels
of light oil/condensate and 1.1 million tonnes of LPG. We won’t be at all
surprised if it turns out to be much larger than that even without more
discoveries. And more discoveries looked very likely.
We are dealing with some very cautious, conservative companies that don’t
want to get burned making exaggerated reserves claims that they can’t
subsequently justify.
To us the offshore Taranaki Basin has all the signs of being the next Bass
Strait. First Kupe production just over twelve months away.
Great read....!!! my glasses have got even more nzo-tinted... but that hides my blue eyes... ;o)
ouch down 4 today, any reason for this or just following all the overseas markets?
Again remember some of the supposed trading will not be real until 4th April which if i remember correctly is the x date for the coming dividend. See my transfer has not come through but at cost will have a artificial damping effect.My suggestion is that inhouse transfer should not be lumped with normal trades. I also believe many relatively small holdings will be moved across inside families and these to will depend on value set at the time.
See oil hit 104
What happened to the KUPE drill update? That has been coming each wed up till now.
Last Kupe update was dated 28-feb, Thursday.
Crude oil for April delivery rose $4.89, or 4.9 percent, to $104.41 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Futures touched $104.64 a barrel, the highest since trading began in 1983. Prices are up 74 percent from a year ago.
First NZ Capital have today upgraded the target price from $1:50 to $1.80 for NOG and $1:55 from $1.23 for Pike.
These are 12 month targets.
Keep them coming.
Cheers