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Sept 2017 O&G Wrap

By Neil Ritchie

Overseas interest in acquiring control of some of New Zealand’s major and mid-sized oil and gas companies continues.

Canadian listed Jadestone Energy is now thought to be another bidder for Royal Dutch Shell’s remaining New Zealand oil and gas assets, joining large listed multinational corporations such as fellow Canadian Vermilion Energy and Austrian giant OMV, Aussie listed Woodside Energy and even private company Greymouth Petroleum, in conjunction with global investment company KKR.

Toronto Stock Exchange-listed company Mitra Energy changed its name to Jadestone Energy in June 2016 and has interests in Sumatra, Vietnam, and offshore Philippines. However, it has only about C$15 million in cash and commentators consider Jadestone too small to bid for any significant stake in Shell New Zealand’s assets by itself, saying Greymouth, this country’s second largest private company, would be bigger than Jadestone.

Australian-listed Beach Energy is also a contender for the Shell assets should it miss out on buying Origin’s Lattice Energy portfolio.

And New Zealand Oil & Gas is the target of two partial takeover offers – one from existing shareholder Zeta Resources and the other from minority shareholder OG Oil & Gas (Singapore).

NZOG’s independent directors have already recommended its shareholders reject Zeta’s bid, of NZ72 cents per share, saying it’s too low and lacks merit. But, if successful, Zeta proposes to return NZ$50 million to NZOG shareholders.

OG Oil & Gas (OGOG) has notified NZOG of its intention to make a partial takeover offer, at NZ77cents per share, which, if successful, will result in OGOG holding or controlling more than 50 percent, and up to 70 per cent, of the voting rights in NZOG. The same independent NZOG directors who dealt with the Zeta bid – chairman Rodger Finlay, Rosalind Archer, Rod Ritchie and Mark Tume – are reviewing the OGOG offer. Northington Partners will again produce an independent adviser's report on the merits of the OGOG offer, as it did for the Zeta offer.

NZOG is unlikely to make any final recommendations to shareholders on either offer before mid-October at the earliest.

Central to the bidding war are two different views on the future of NZOG and its production and exploration permits.

Zeta has said it wants to cut NZOG's overheads and views further exploration as risky. OGOG, however, is keen for NZOG take advantage of its interests in the Clipper exploration licence (PEP 52717), containing the promising Barque Prospect in the offshore Canterbury Basin, and believes NZOG’s interest in the Great South Basin Toroa licence (PEP 55794) should be "diligently pursued".

NZOG is also looking to integrate majority-owned Aussie listed company Cue Energy Resources into an enlarged company, with NZOG chief executive Andrew Jefferies saying his company is “determined to integrate Cue Energy into NZOG” and avoid “unnecessary and wasteful” duplication of services. Cue has accumulated losses of A$104.8 million over the past two years.

 Meanwhile, NZOG has moved back into the black, posting a NZ$52.6 million after-tax full-year profit and turning around last year's asset-driven write down and NZ$51.8 million loss.

Jefferies has said the main contributor to the after-tax profit was a gain on the sale of its 15 percent interest in the offshore Taranaki Kupe gas-condensate field (to Genesis Energy). This means that “together with the disposal of the mature (offshore Taranaki) Tui oil field interest, the company has successfully minimised its exposure to abandonment liabilities,” he added, referring to Tamarind Resources earlier taking complete control of the ageing Tui asset.

Maari oil operator Austrian giant OMV has recently said that permanent repairs to a fatigue crack in one of the horizontal struts on the offshore Maari wellhead platform – first identified last November -- have been completed.  Strengthening – namely the installation of two external clamps – was completed during late August. New Plymouth-headquartered Fitzroy Engineering manufactured the clamps and they were installed by New Zealand Diving and Salvage. Lloyds of London independently certified the installation.

Canadian listed juniors, operator TAG Oil and East West Petroleum, have drilled and completed the Cheal-D1 well in the onshore Taranaki Cheal East licence PEP 54877 but, following extensive testing, have decided gas in the shallow Urenui Formation was not present in sufficient quantities to make Cheal-D1 an economic discovery. The well is now suspended with a possible side-track into an adjacent fault block planned, as well as testing two intervals of the deeper Mount Messenger sands encountered during drilling.

Company chief executive Toby Pierce, long-time international oil man Alex Guidi, and veteran Kiwi energy executive Dave Bennett -- along with Keith Hill, Ken Vidalin and Brad Holland - have been elected to the TAG board of directors.

Meanwhile, fellow listed Canadian junior New Zealand Energy Corp is still losing money, with a net loss for the six months to June 30, 2017, of C$1,143,293 (compared to a net loss of C$1,760,264 for the corresponding 2016 half-year).

But while its financial losses are lessening, its petroleum production is declining, with the company achieving average net daily production of only 152 barrels of oil equivalent per day (boepd) (with 86 percent of that being oil) for the latest six months, compared to 271 boepd (74 percent oil) achieved during the corresponding 2016 period.

However, chairman James Willis says he is still “encouraged by the work (chief executive) Mike Adams and his team are doing – technically, operationally and commercially”.

During the latest quarter, progress has been made on upgrading gas processing and infrastructure ahead of the next stage implementation of the Waihapa enhanced oil recovery project. And, commercially, there has been incremental building of the midstream business “which is an important part of the strategy to make the business an ongoing success”, Willis has added.

Private company New Endeavour Resources has surrendered its onshore Taranaki licence PEP 57070, basically because it could not commit to New Zealand Petroleum and Minerals (NZPAM) drilling requirements. “But there is still a lot of oil and gas to be found in Taranaki and this (giving up the permit) does not dampen our enthusiasm,” company chief executive Mark Webster said.

And NZPAM has advised London-listed junior Mosman Resources that it no longer complies with its obligationsregarding its South Island Murchison permit. But NZPAM says this can be rectified by Mosman drilling two wells and acquiring 10km of seismic by next March. Mosman is also considering farming out some of its more southerly Petroleum Creek permit and has put up for sale the freehold property covering the Petroleum Creek drilling site, which is expected to cover most of future abandonment costs.

Finally, despite increasing concerns worldwide about climate change, the International Energy Agency is predicting global demand for natural gas, the cleanest fossil fuel, will continue to grow as buoyant economies, particularly those in South-East Asia, are still expanding. The Paris-headquartered IEA is forecasting a 1.6 percent increase in global annual gas demand each year for the next five years, with world consumption increasing from about 128 trillion cubic feet during 2016 to approximately 141 trillion cubic feet in 2022.