Mcdouall stuart-nzo a takeover target
NZOG a takeover target: analyst
Neil Ritchie, New Zealand
Wednesday, 6 August 2008
WHILE most energy analysts are pondering how New Zealand Oil & Gas will spend some of its “sizeable war chest” of about $NZ280 million ($A222 million), McDouall Stuart has raised the possibility of NZOG being taken over by a larger corporation.
The Umuroa FPSO at the Tui Area oil project
In its latest report on NZOG, Wellington-based McDouall Stuart said NZOG’s significant discount to valuation, outstanding asset portfolio, cash-heavy balance sheet, open register and reserve upside potential were “key attractions to a potential suitor”.
However, potential suitors were not obvious, with the majors appearing to be resigned to a relatively passive upstream presence in New Zealand while Australia’s Origin Energy and Australian Worldwide Exploration are currently managing merger and acquisition activities elsewhere in their businesses.
McDouall Stuart added that while it appeared increasingly certain that NZOG would spend some of its “sizeable war chest” overseas, it was likely that NZOG would focus its resources primarily within NZ.
“While NZ opportunities may not currently be abundant, there is considerable scope to lean on existing domestic relationships. The Tui and Kupe JVs are each strong, and are led by field operators that appear increasingly committed to NZ.
“Travelling with the JVs to drill new prospects within existing licence areas would represent a continuation of NZOG’s already successful model.”
Rig availability appeared to be the biggest constraint, with early 2010 likely to be the earliest a rig could be secured for New Zealand.
However, McDouall Stuart added, international campaigns brought quite a different risk profile.
“Depending on the target geography, political and economic risks play a much greater role. NZOG’s strategy must show both purpose and balance.”
The broker also noted the offshore Taranaki, New Zealand Tui oil field was still “going like a Boeing”, and that the nearby $NZ1.1 billion ($A0.87 billion) Kupe gas-condensate field development was over 80% complete.
Tui continued to outperform all pre-commissioning projections, producing a total of 15.23 million barrels for the 12 months to July 30, at an average rate of 41,600 barrels per day.
However, deliverability was expected to continue to decline until early 2010 when the drilling of at least one new production well, Tui-4H, was scheduled to be completed.
Confirmation of the intention to increase the floating, production, storage and offtake vessel Umuroa’s liquids handling capability, from 120,000bpd to 150,000bpd, would also boost deliverability.
“We continue to be of the view that increasing the FPSO oil-stripping capacity will deliver significant value to the JV. Advancing Tui’s production profile and, therefore, cash flows could add as much as 15 percent to the value of the field.”
The broker also said that day-to-day running of the field had improved markedly over the past 12 months.
“Improved demulsifying has reduced water and sediment levels in Tui sales product, moving the quality differential in the JV’s favour … the FPSO has at times operated comfortably at 130,000 barrels per day.”
McDouall Stuart added that first production from Kupe was expected in early 2009, with full production likely in the second quarter.
The broker also said that a reserves upgrade appeared likely, with the partners, headed by operator Origin Energy, expected to make an announcement before the end of this year, given the success of the three-well development drilling campaign.
The three development wells flowed more than 115 million cubic feet a gas of gas and 16,000 barrels per day of condensate during initial production testing earlier this year.
Current Kupe 2P estimates are 253 petajoules of gas, 14.7 million barrels of condensate and 1.1 million tonnes of LPG.
NZOG shares were this morning trading on the Australian Securities Exchange for $A1.20-1.22 and on the New Zealand Exchange for $NZ1.55-1.59.
The Tui partners are operator AWE (42.5%), Mitsui E&P NZ (35%), NZOG (12.5%) and Pan Pacific Petroleum (10%).
The Kupe partners are operator Origin Energy (50%), Genesis Energy (31%), New Zealand Oil & Gas (15%), and Mitsui E&P NZ (4%).
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