WELLINGTON: NZ Oil & Gas (NZOG) is cutting costs and hunting for distressed assets to buy, while also preparing for one of the most expensive drilling campaigns it has undertaken.
The Wellington headquartered oil company told its annual general meeting on Thursday that in response to plunging global oil prices, the company had reduced head office staff numbers, deferred exploration spending and surrendered “low priority” permits. Brent, the international benchmark for crude oil, is currently trading at less than US$50 a barrel, with the price roughly halving in just over 12 months.
Andrew Knight, chief executive of NZ Oil and Gas, is “cautiously optimistic” the company can find partners for drilling campaign off the coast of Oamaru. Andrew Knight, chief executive of NZ Oil and Gas, is “cautiously optimistic” the company can find partners for drilling campaign off the coast of Oamaru.
But chief executive Andrew Knight said NZOG was still actively working to find partners to share the costs of a well in the Barque prospect 30 kilometres offshore of Oamaru, which is expected to cost around $100 million. The prospect lies in water around 800 metres deep. Under permit conditions agreed with the Crown, the NZX-listed company faces a “drill or drop” decision – drill a well or give up the permit – in April 2016.
Knight said with oil prices plunging much of the industry was looking to cut costs, but the Barque prospect, which potentially contained hundreds of millions of barrels of oil and gas, was still attracting interest.
“It’s not an ideal time” to search for partners for Barque, Knight said. “The best time to be searching for partners for Barque is when the market is booming. But the reality is this is the time that we have to search for partners for Barque.”
Knight said across the planet there had been an “aggressive” cut back on projects which required oil to cost more than US$100 a barrel to be profitable, while Barque could, potentially, be profitable at a much lower price. In June the company revealed that its “mid-range estimate” of prospective resources was equivalent to 530 million barrels of oil.
“We’ve got a number of parties who are undertaking fairly extensive technical due diligence programmes” and others who were looking for a way to enter the New Zealand market. NZOG recorded a loss in the year to June 30 after it wrote down the value of its assets to reflect a lower oil price, but continues to generate cash. It returned more than $60 million to shareholders in the year to June 30, but finished the year with more than $80m cash on its balance sheet and no debt.
Knight said the company may look to deploy its cash reserves to buy competitors or oil producing fields. Already there were opportunities presenting and Knight predicted assets would become increasingly attractive the longer oil prices stayed low.
“I still don’t think we’ve seen the distressed assets come up,” Knight said, with investors in the US, Asia and Europe so far willing to pump money into oil companies, but this was unlikely to last. “At some stage the losses that people are taking, the losses are going to come back and bite them and the capital markets are going to dry up.”
