Plunging oil prices have forced New Zealand Oil & Gas to shed workers, prune its board and will lead to the shutdown of an offshore field four years early.
A leading analyst says this is the type of fallout that could afflict the sector for years rather than months as there are no signs of a return to sustained high prices.
New Zealand Oil & Gas (NZOG) last week reported a six month loss of $45 million to the end of December and even though it "continues to produce enough cash to sustain it despite low oil prices" the company's board was intensifying its focus to minimise cash burn. The oil exploration and production company is not expecting prices to recover markedly due to oversupply.
"We're readying ourselves for the lower-for-longer scenario - we believe there's a fair bit of oil sitting behind the pipe waiting for prices to recover," said NZOG's chief executive Andrew Knight.
The value of the 27.5 per cent NZOG stake interest in the Tui oil fields has been written down by $8.7 million.
"As a result of expected lower forward oil prices the company now forecasts the field's economic life will end in the first quarter of 2018. Tui will then be abandoned, assuming current oil prices," Knight said.
"In our previous forecast when oil was $100 a barrel we were still abandoning in 2022, we have only come in three or four years."
The company will not replace its outgoing chairman Peter Griffiths to cut board numbers and directors fees will be cut.
"The company is looking to extract more value from existing assets and continues to screen opportunities actively to grow through acquisition. The board intends to manage capital carefully and retain only capital needed for the company's strategy," said new chairman Rodger Finlay.
Knight said that in previous years the company had spent up to $35 million on exploration and in the past six months had spent about $1 million in a change of strategy to concentrate on acquiring companies to expand reserves.
"You can get new reserves by sticking holes in the ground and exploring or you can get more reserves through acquiring - the trick is to get the balance right," he said.
Compared with other mid-size companies around the world, NZOG was "pretty well positioned" with about $60 million of its own cash.
During the past year the company's share price has ranged from a high of 63c to 39c. Its shares closed at 46.5c on Friday.
The head of research at Woodward Partners, John Kidd, said there were two types of play in New Zealand. In the mature fields of Taranaki, exploration was grinding to a halt.
"Some of the work programmes which have been some years in coming have reached their end and [are] not being replaced," he said.
Speculative frontier basins were a totally different proposition.
"They continue to bubble away in the background but the big-spend, high-impact exploration is now behind us
. This is not specific to New Zealand it's happening around the world."
Kidd said there had been some job losses but other projects such as renewal at the Methanex plant in Taranaki provided replacement.
"Hopefully we're in the bottom of the cycle right now. The feeling in the markets is this is a case of lower for a lot longer. The market is fundamentally oversupplied."