KEY POINTS:
Just over a year ago, New Zealand Oil & Gas barely had any analysts taking a regular interest, it hadn't paid a dividend for a decade and money was gushing out the door.
And then, unlike much of the rest of New Zealand business hammered by soaring commodity
prices, the planets started lining up the other way.
Like Pike River Coal, in which it has a 31 per cent stake, it's a relatively simple proposition - commodity price booms flow straight to the bottom line. As seen by Pike River being close to production is good enough in redhot commodity markets so that what are normally regarded as speculative stocks are now easily outperforming traditionally defensive stocks.
When oil started flowing from the Tui oil field at the end of July the 27-year-old NZOG was transformed. With a 12.5 per cent stake in the field and it suddenly had revenue which has grown from original forecasts of $300 million for the life of the field to over $1 billion, given reserve upgrades and doubling of oil prices over the year.
It now has seven analysts following it, will this year pay a 5c dividend and has during the past 12 months seen its shares climb from 99c to as high as $1.91c. And in what is shaping as the biggest capital raising of the year NZOG has just raised $192.7 million through the take-up of options by its shareholders.
Just under 139 million options were on issue, 92.5 per cent of which were exercised giving it a market capitalisation of about $650 million and propelling it into the top 20 stocks.
The capital injection provides the company with big opportunities - and huge challenges.
As with the rest of the world, the easy oil and gas has been taken so the company is aggressively looking for new ventures. It is sticking to oil and gas and not interested in downstream business, such as electricity. It is not looking at any onshore Taranaki acreage which it has identified as high risk for low return, likewise is not involved in the Great South Basin and says the scale of opportunity may not be here in New Zealand.
This means the company is looking further afield and not necessarily in Australia.
Analysts are now awaiting the next move.
Hamilton Hindin Greene's Grant Williamson says the company is well positioned.
"You would hope they'd make the right decisions when they spend the money they've got in - that's probably the big question if they look at buying producing assets or oil in the ground - how much are they going to pay for it on the current oil price? That's my concern, (but) they've got some very experienced people."
McDouall Stuart's John Kidd says in a June 23 research note: "NZO will need to demonstrate purpose and balance in defining its forward strategy to justify investors' confidence."
He ascribes above average risk to the company and a target share price of $2.32. Other analysts' reports over June put the 12-month target from a low of $1.98 from ABN Amro to $2.48 from First NZ Capital.
The other shining star of the market has been Pike River Coal. Although it has retreated from its recent high of $2.45, the record contract prices of US$300 a tonne for its hard coking coal are attracting investors even though they have not yet hit the seam
The company is on target to sell 20,000 tonnes within the 2009 financial year.
Concern that international coal prices had over-reached themselves led to a sell-off of stocks in the sector last week but Kidd says the long-term demand, driven by China and India, is still strong.
Tunnellers are now boring into another potentially tricky part of the Paparoa Range, the Hawea fault, where badly fractured rock and the presence of methane could pose problems. Analysts over the past six weeks have put target prices of between $2.56 to $2.75.
As with NZOG, a fall in the value of the New Zealand dollar will help balance rising development and running costs.
Investors have flocked to oil and other commodities this year as a hedge against rising inflation and the weak greenback.
But the International Energy Agency forecast pressure on oil markets could ease next year as demand growth slows, cutting the need for crude from Opec.
