NZOG share price fall overdone, CEO Salisbury says

NZOG share price fall overdone, CEO Salisbury says

Jan. 31 (BusinessDesk) – Investors have overdone their sell-off of New Zealand Oil and Gas Ltd. following the Pike River coal mine disaster, and are failing to account for the impact of high oil prices on the company’s fortunes, says chief executive David Salisbury.

NZOG, which owns 29% of Pike River and has exposures to the mine totalling $150 million, issued its first quarterly update since the explosions at Pike River in November claimed 29 miners’ lives and saw the troubled mine delisted from the NZX and placed in receivership.

“In NZOG’s view, our share price declined by more than the total value of our investment in Pike River,” said Salisbury. “On top of that, the share price has not reflected the strong rise in international oil prices or the increase in reserves at the Kupe field.”

NZOG’s shares fell to 86 cents from $1.20immediately after the first mine explosion, and was trading at 85 cents on the NZX this morning, down 1.2% on Friday’s close.

The company expects to announce a “significant accounting loss” in its first half results, because of the Pike River impact. As well as its shareholding, valued at $82 million, NZOG has outstanding loans to Pike of $64 million, with no short term clarity expected on the extent of any recoveries from the mining operation, which NZOG had been looking to sell as a “non-core” asset before the explosions.

While there was a desire to mine the coal in the Pike River seam, it was too early to say whether the existing mine would ever reopen, whether a new underground mine could be drilled in the future, or whether there would be reconsideration of an open cast mine in the protected conservation area.

“The commercial rationale at Pike River remains robust,” said Salisbury, but it would be “naïve” to expect any swift decisions. Likewise, it would be some time before the outcome of insurance claims, capped at a maximum of $100 million, was known. As a shareholder, NZOG was last in line for recompense, although its secured and unsecured debt would rank higher.

Shareholders had supported NZOG’s decision to advance a further $12 million to Pike after the disaster struck by a ratio of nine-to-one in letters to the company, said Salisbury. Without that advance, Pike would have been “broke” while rescue operations were still ongoing.

Salsibury also told a media briefing that various options are being assessed for increasing production from the Kupe field, including gas reinjection.

However, he painted a downbeat picture for new exploration activity, saying the lack of success in the much-touted 2009/10 drilling campaign had created negative sentiment among “traditionally aggressive” explorers such as ASX-listed AWE Ltd., and the Japanese Mitsui group.

“They are having their own internal rethink about their business focus,” said Salisbury. “There is less enthusiasm for New Zealand at the moment.”

This was the primary reason that NZOG had gained a six month extension on its “drill or drop” decision relating to the “drill-ready” Kaupokonui prospect, offshore Taranaki, to give extra time to find farm-out partners.

At this stage, NZG has identified one farm-out partner, Peak Oil & Gas from Australia, which has taken a 10% interest in PEP51311, in return for meeting 20% of drilling costs.

Decisions were expected by late 2011, said Salisbury. There is no opportunity for NZOG to pick up the exploration rig, Noble Challenger, which the Shell/Todd/OMV consortium is using to rework parts of the Maui field.

On other exploration plays, Salisbury said reassessment of seismic data early this year would determine opportunities in the Tui, Amokura and Pateke fields, within the Tui oil field zone; development drilling at Kupe is being planned for 2012 or 2013; and an increased holding in PEP51588 (Parihaka, offshore Taranaki adjacent to the Pohokura field and the Albacore prospect) is being considered. NZOG currently holds 20% of Parihaka. NZOG will continue to hold 100% of PEP38491 (Albacore) following withdrawal by the previous operator, Westech, while PEP51321 (Kahurangi) will be reassessed by the end of March, when a decision to relinquish or drill will be made.

NZOG continues to pursue frontier basin exploration through its 40% interest in the Barque prospect (PEP38259), in the Canterbury Basin, but is still evaluating risk management and preferred drilling location. The company also expects to be granted a 40% interest in PEP52717, adjacent to Barque, as it examines “a newly recognised potential reservoir system across both blocks.”

(BusinessDesk)

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