Analysts are at odds over the business path of New Zealand Oil & Gas, with one picking potential asset sell-off and liquidation and another a new emphasis on expansion through joint ventures.
While no-one can agree on whether NZOG got true value in selling the Kupe field, NZOG’s value is now largely determined by the cash it holds, but its future plans are yet to be spelled out. In a surprise move, NZOG sold its 15% stake in the Kupe oil and gas field this week to Genesis Energy for $168million; an obvious buyer wanting to underpin its lpg division, which lifted its stake in Kupe to 46%.
While NZOG said the $168million sale was at the top end of its value expectations, brokerage Forsyth Barr said the sale price was at a 21% discount to its Kupe valuation of $206million, while brokerage Craigs Investment Partners estimated it was sold at an 11% discount, against its Kupe valuation of $190million.
NZOG has said subject to gaining shareholder approval in December, it would be returning $100million from the sale process to shareholders, and using the cash balance to pursue "investment opportunities".
NZOG’s cash in hand stood at $98.6million at the end of September, with a further $68million retained from the Kupe sale, plus NZOG’s entitlement to overriding royalty interests until the January settlement date.
Forsyth Barr broker Damian Foster said, in Kupe’s sale, NZOG was selling its most valuable asset, it being its largest operating cash flow and by valuation, leaving it "effectively a cash box".
"The sale of Kupe is a surprise and may signal the beginning of the end for NZOG ... we wonder whether this is the first step towards NZOG’s liquidation," Mr Foster said.
Craigs Investment Partners broker Peter McIntyre said liquidation of NZOG was now "problematic", because of its stake in the Tui field, and believed joint ventures in brownfield (existing) operations would be its new focus.
"A full unwind of the company will be difficult due to its stake in Tui," he said,.
The Tui field needed remediation work in the next two to three years, with cost uncertainties, which in turn would not be tax-deductable.
"This scenario makes a full exit problematic," Mr McIntyre said.
Mr Foster said there were three reasons why the Kupe sale might be "the beginning of the end".
The Kupe sale price was "materially lower" than Forsyth Barr’s valuation. Had Genesis instead purchased some of the 50% of shareholder, and field operator, Origin Energy’s Kupe share, it would have made selling its 15% share "very difficult".
In the past, NZOG had "talked up" Kupe’s future potential, but the sale price did not appear to include any of Kupe’s inherent value, and the sale undermined NZOG’s strategic plan to be seen as a New Zealand-based partner of choice for offshore oil and gas companies.
"Assuming the sale of Kupe is approved by shareholders [next month] NZOG’s value will be dominated by cash," he said.
Mr Foster said NZOG’s 27.5% stake in the Tui field was a liability; given future work required on it and its stake in Cue Energy was "minor".
"We believe the gradual liquidation is the most likely outcome for the business, although it could take several years," he said.
