NZOG takes hit on falling oil price

NZOG said oil reserves at its Pateke 4H well, in the Tui field, were smaller than expected.

New Zealand Oil & Gas, the exploration company, turned in a loss in its first half after the global drop in oil prices saw it recognise a $13 million write down on its Tui oil field.

The Wellington-based company reported a loss of $10.5 million in the six months ended December 31, from a profit of $4 million a year earlier, it said in a statement. Sales rose 5.2 per cent to $54.1 million, largely driven by its ownership of a larger stake in Tui, purchased in the last year, and stability in gas prices despite oil price falls. Earnings before interest, tax, depreciation, amortisation and exploration expenses was $28.3 million, compared to $31.4 million in the previous comparable period.

Global oil prices have plunged in recent months, exacerbated by the Organisation of the Petroleum Exporting Countries resisting calls to reduce their supply as they try to protect their position from rival producers.

Against that backdrop, and with no debt and $115.3 million in cash, NZOG says it is focusing on acquisitions to diversify away from fluctuating oil values and bolster its income, while drawing back from exploration activity.

The company is in the midst of a takeover offer for Cue Energy Resources, which draws revenue from the Maari and Manaia oil and gas fields.

"Oil prices affect revenue and the Tui valuation but our revenue from gas sales has not been affected in the same way," chief executive Andrew Knight said in a statement. "I expect the business's performance to continue to be fundamentally sound with our mix of assets and the business overall remaining cash flow positive. The lower oil price has resulted in a number of assets coming to market. This represents an opportunity to use our positive cash flows for acquisitions where opportunities present value for shareholders."

ASX-listed Cue has advised shareholders to reject the 10 Australian cents per share takeover mounted by NZOG last week, saying it "substantially undervalues" the company and may see unproven exploration opportunities sacrificed in favor of immediate cash flow from producing assets in New Zealand in the Maari and Manaia fields. NZOG already holds a 20 per cent stake in the company, which it bought for $14.7 million last year, and bidder documents suggest it would settle for 30 per cent.

NZOG is pulling back on further exploration, returning two Taranaki-based exploration permits to the government. In the six month period it spent $13.5 million on exploration, compared to $12.6 million a year earlier.

Revenue from its Tui oil field was $22.7 million from 227,000 barrels of oil sold, compared to $13.4 million on 97,000 a year earlier. Sales from its Kupe gas and oil field were $31.4 million from production of around 450,000 barrels of oil equivalent, compared to $38 million a year ago on 472,000 barrels equivalent.

Earlier this year NZOG said oil reserves at its Pateke 4H well, in the Tui field, were smaller than expected. Today it said it expects gas sales volume and prices to dsupport revenues, with support from production at Pateke, with first oil expected in April.

Shares of the company last traded at 62 cents.