Genesis Energy will buy New Zealand Oil & Gas's stake in the Kupe gas and oil field for $168 million, which the country's biggest electricity retailer expects will immediately boost annual earnings.
The deal will increase Genesis's stake to 46 per cent in the oil field, with operator Origin Energy holding 50 per cent and Mitsui E&P the remaining 4 per cent, and includes NZOG's royalty interests.
NZOG currently sells gas from the field to Genesis and LPG to Vector, and the state-controlled power company expects the increased ownership will give it access to 160,000 extra barrels of oil and 13,000 additional tonnes of LPG.
Genesis estimates the acquisition will lift pretax earnings by $15 million and net profit by $2 million in the 2017 financial year and the additional cash flow will help it to keep imputing dividends at the current 80 percent level.
"The increased stake enables Genesis Energy to access and manage more flexible fuel supply well into the next decade," chief executive Marc England said in a statement.
"The strong cash flows will also provide headroom to invest in organic growth areas aligned to Genesis Energy's strategy, such as technology-enabled home energy management."
Earlier this year the partners in the Kupe joint venture upgraded their outlook on its untapped reserves and said they were looking at ways to develop those further.
NZOG said the sale needs to be ratified by shareholders at a special meeting next month, where the board will recommend the deal with the offer fully priced and at the higher end of its valuation range.
If it goes ahead, $100 million will be returned to investors in 2017.
"The offer from Genesis represents a premium that crystallises the value that we see ahead," acting chief executive Andrew Jefferies said in a separate statement. "We expect the transaction to result in a higher share price that will substantially narrow the discount to underlying asset value."
The increased stake enables Genesis Energy to access and manage more flexible fuel supply well into the next decade.
Once that happens, NZOG says it will be better placed to chase other acquisitions and investment opportunities.
Genesis said the acquisition will be funded through existing debt facilities and be effective from Jan. 1.
The deal also needs ministerial approval.
NZOG shares last traded at 50 cents, having gained 18 per cent so far this year, while Genesis stock closed at $1.89, down 2.1 per cent since the start of the year.