Hi Fish
I have run numerous models covering a lot of different scenarios. There are not many likely scenarios that show much downside, as the share price appears to have a risk discount built in. There are a lot of possible scenarios that show great upside. Price of oil, exchange rate and amount of oil/gas produced are the critical factors, along with risk avoidance.
The price of oil is already very strong, and I do see it falling too far in the forseeable future. I can see a pullback when oil trading becomes less profitable and the speculative money moves on, but the underlying supply/demand position should see long term strength. Texas and North Sea fields no longer have the capacity to keep a lid on prices for the West and OPEC seems happy with $100 and above. Rig contract prices and terms indicate that oil price is expected to remain high for some time to come.
Our exchange rate should eventually fall relative to the basket when our interest rates come down. If we appear to rise due to US$ weakness then the price of oil will probably move to compensate.
NZO is a partner in some excellent permits. The last four holes may not have been successful, but there is a considerable and growing knowledge base of the Taranaki basin within NZO. I think there is a good chance of more success in the two key oil permits (PMP38158 and PEP 38499). Yet another Tui upgrade is likely, given the consistent over-performance to date and the new production well to be drilled.
Kupe is getting nearer - with a plant that has vastly more capacity than is justified by reserves discovered to date.
Since the poor start to the PRC project, NZO management have performed pretty well in most areas. Unfortunately for the share price for a while, PR was not a key focus - prior to the dividend announcement. It is heartening to see that there have been no rash decisions as they embark on the growth strategy.
Of course there is risk - and plenty of it. But the current and potential earnings streams are very attractive compared to anything else on offer on the NZX.