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May 2017 NZ O&G Wrap

By Neil Ritchie

The composition of the New Zealand energy sector continues to change, with “gentailer” Genesis Energy acquiring Nova Energy’s retail liquefied natural gas (LPG) business for $NZ192 million, giving the country’s biggest electricity retailer almost a fifth of the LPG market.

The deal will increase Genesis's share of retail LPG from three percent to 19 percent, making it the second largest player (by customers) in the market, behind Contact Energy.

The deal between Genesis and Nova, a subsidiary of the family-owned Todd Corporation, should deliver about $NZ17 million of earnings during the 2018 financial year before interest, tax, depreciation, amortisation and movements in the value of financial instruments before integration costs.

Genesis has recently said the deal will also generate "synergies” of between $NZ4 million and $NZ6 million per annum from the 2019 financial year onwards “mainly from vertical integration benefits".

Nova's network includes a nationwide retail and bulk distribution system with 35,000 bottled LPG customers across residential, commercial and industrial segments. The acquisition also includes about 6400 dual fuel electricity and LPG customers, as well as an option to acquire Nova's 12.5 percent interest in national LPG distributor Liquigas for “an additional consideration”.

The Nova purchase is the second large acquisition for Genesis Energy in the past six months after it agreed to buy New Zealand Oil & Gas' 15 percent share of the offshore Taranaki Kupe gas and condensate (light oil) field for $NZ168 million last November – a transaction that gives it close to half Kupe's annual production of some 90,000 tonnes of LPG.

Energy analysts are not surprised by the Genesis move, with John Kidd, energy equities analyst at Woodward Partners saying: "It was always just a matter of which business Genesis would pick up (and) for them to plug the hole between upstream and downstream makes absolute sense."

Settlement is expected by the end of May, subject to due diligence, with rebranding expected to be completed by the end of July.

And Nova Energy’s plans to use more natural gas for electricity production have moved forward, with the Waikato Regional Council and Otorohanga District Council granting the resource consents necessary to construct a 360MW gas-fired power station near Otorohanga, south of Hamilton.

Meanwhile, methanol manufacturer Methanex is planning a maintenance shutdown of at least one of its three production plants in Taranaki – two at Motunui and one in the Waitara Valley.

Methanex has so far declined to comment on the details of the planned closure but it is widely known in the industry that additional contractors and personnel, perhaps 100 or more, will be involved in addition to the usual Methanex staff and contractors. Any shutdown will be a welcome shot-in-the-arm for the energy support sector and is likely to cost several million dollars.

And Canadian listed junior New Zealand Energy Corp has released its 2016 calendar year results, increasing oil and natural gas production while still running at a finance loss, though that loss is lessening. 

The company achieved average net daily production of 219 barrels of oil equivalent per day (boepd), with 78 percent of that being oil, compared to only 143 boepd (80 percent oil) during 2015.

The net loss for the 2016 year was $C5,225,884 compared with a loss for the 2015 year of $C5,910,543.

Most of the net loss ($C4,522,811) was attributable to non-cash items (including an impairment write down of $C2,955,857 (the 2015 figure was $C1,674,100), depreciation and depletion.

Chairman James Willis has said the impairment write down was because some parts of the onshore Waihapa production station (specifically the LPG plant) were no longer being utilised. NZEC and L&M Energy jointly own the Tariki, Ngaere and Waihapa fields and the nearby production station.

However, Willis added: "We are pleased with the progress made to date regarding the Waihapa-Ngaere enhanced oil recovery project.”

The first stage of this project has seen production from the Waihapa-6A well (within the Waihapa and Ngaere fields) quadruple, with this result being achieved by the “mobilisation of stranded oil” by reducing reservoir pressure through an increase in total fluid production of up to 5000 barrels per day (bpd).

“These are encouraging results and provide additional confidence in the reservoir engineering concepts underpinning the project basis and design,” he said.

NZEC was now progressing stage two, with continuous gas-lift having been implemented in the Ngaere-2 and 3 wells, and an upgraded gas-lift design in the Ngaere-1 well. “The field is now producing about 7000 bpd of total fluids.”

He added that to increase the company's resilience to lower oil prices, a further $NZ1million in operating cost reductions was being implemented.

"Further significant highlights include stable production from the Copper Moki wells (and) … operational optimisation is on-going and the continued successful focus on cost reduction across the business leaves the company in a better position to continue efforts to increase production in 2017," he concluded.