New Zealand Oil & Gas says it is too small relative to the size and risk profile of its exploration portfolio.

The firm is recommending shareholders accept a takeover by near 70 per cent major shareholder OG Oil & Gas at 62 cents per share, the bottom of the independent valuers' range, which values the minority holdings at about $30.7 million.

It says its operating environment changed fundamentally with the government's ban on new offshore exploration in April 2018.

NZOG shares fell 2.4 per cent to 61.5 cents.


OGOG, the oil and gas arm of Ofer Global, bought into NZOG in 2017, paying 78 cents a share for most of its holding.

International explorers no longer consider New Zealand an appealing place to invest and attracting that investment can no longer be the firm's core strategy for growth, it says.

Independent directors Rosalind Archer and Rod Ritchie say the firm is at a "crossroads", unable to raise the funds to participate meaningfully in acquisitions and developments, and with an exploration portfolio better suited to a much larger entity.

"As prudent board members, we cannot wish away the new reality," the pair say in a 116-page report detailing and assessing the scheme of arrangement the firm has negotiated with Singapore-based OGOG.

"Large amounts of additional capital are required to fund growth opportunities, but we are doubtful of the company's ability to raise additional equity or debt on reasonable terms in the current environment," they say.

"Despite the challenging environment, OGOG believes that New Zealand Oil & Gas can remain viable in New Zealand if its operations and staff are integrated into OGOG's global business, where it will have scale and competitiveness to realise opportunities that a small listed company can't."

NZOG shares fell 2.4 per cent to 61.5 cents.

OGOG, the oil and gas arm of Ofer Global, bought into NZOG in 2017, paying 78 cents a share for most of its holding.


Shareholders are being asked to vote on the proposal at a special meeting on Oct. 16.

An independent analysis by Northington Partners valued NZOG at 62-84 cents a share and described the OGOG offer as "reasonable but not overly compelling."

Most of that value was the firm's 4 per cent stake in the Kupe gas field and its controlling stake in Melbourne-based Cue Energy Resources, which has a stake in the Maari oil field and producing interests in Indonesia.

Little value was ascribed to NZOG's stakes in the Clipper and Toroa exploration permits off the lower South Island given the "highly uncertain" prospects for attracting partners.

Northington noted the 3-12 cents a share it ascribed to NZOG's interests in the Ironbark project off north-western Australia captures neither the full potential upside from success nor the downside in the event of failure.

Major drilling difficulties could see the firm spend more than the $24 million committed as its share of the BP-led venture and still come up with nothing. Cue would also lose about $12 million, significantly reducing the value of NZOG's stake in the business.


NZOG noted that, in the event of a dry hole at Ironbark, it estimated its share value would fall by about 15 cents to about 47 cents.

It also noted that, after allowing for the Ironbark stake, improved production from Kupe, costs from the failed Kohatukai drilling and the write-down of the firm's Kisaran interests in Indonesia, OGOG's offer price is close to the 78 cents paid in 2017.

- BusinessDesk