WELLINGTON Oct. 18, 2007 (Dow Jones Newswire)
New Zealand Oil & Gas Ltd. (NZO.NZ) plans to almost double its total production by 2012, both through acquisitions and by ramping up exploration, according to Chief Executive David Salisbury.
"We've said that we will have a go at roughly doubling the company (production).That's a meaningful target and it's going to drive a lot of energy in that direction," Salisbury told Dow Jones Newswires in an interview Wednesday.
"Whether we then achieve 50% growth or 200% growth, that will play out depending on the opportunities that come our way and how successful we are in pursuing them."
The New Zealand-based exploration and production company owns a 12.5% stake in the Tui oil field, a 15% share in the Kupe gas field, a 31% interest in recently floated Pike River (PRC.NZ) coal mine and has an ongoing exploration program in the offshore Taranaki Basin in New Zealand's North Island.
Exploration activity in New Zealand has increased in recent years as its main gas reserve at the Maui Field runs dry, and NZOG is one of the firms stepping up activity to take advantage of demand, as well as soaring oil prices.
With a market cap of NZ$300 million, New Zealand Oil & Gas is a relatively small player in the exploration sector, but plans to increase production output equivalent to 2 million barrels of oil a year by 2012, almost double the 1.1 million forecast for the 2008 fiscal year.
Production from existing assets is expected to peak at 1.3 million barrels by 2010, and ease to just over one million by 2012, so expansion is vital if the company is to meet its target.
Salisbury said the company is looking for exploration opportunities, asset purchases and corporate acquisitions.
"If we want to try and double the company, we've got to have growth steps that are quite large relative to the existing size of the company."
The CEO declined to comment on its specific targets, though the market has speculated NZOG might be after U.S.-based Swift Energy's local business.
But he's confident the boost in income from the Tui oil field puts it on a firm financial footing to attract funding from the market, which could be accessed through further debt, a share placement or issuing shares to another company.
Tui Production Boost
The estimated reserves of the Tui field were upgraded by 15% in August to 32 million barrels of recoverable oil, of which the company's share is 4 million.
The firm's revenue is expected to surge to more than NZ$100 million in the fiscal year ending June 30, 2008, from NZ$18 million in fiscal 2007, mainly because Tui comes into production in July this year at a time when oil prices are sky high.
On current prices, the company's estimate that Tui sales should add around NZ$60 million to operating earnings is "fairly conservative," Salisbury said.
Tui is currently producing an average 40,000 barrels a day, but Salisbury anticipates this will hit a peak of 50,000 soon.
The company's second major asset, Kupe, which is predicted to produce 254 petajoules of gas, as well as LPG and condensate, is on track to start production in mid-2009.
Salisbury isn't worried about the impact of the recently announced government energy strategy, which may curb new thermal generation, mainly because state-owned Genesis Energy has an obligation to buy Kupe gas.
But regardless of the focus on renewables, he continues to see an opportunity in gas exploration and production.
"The current thermal generation and gas market is supply constrained rather than demand constrained," he said.
NZOG aims to spend NZ$25 million this fiscal year on exploration, first targeting near field sites close to its existing assets, such as its Momoho prospect due to be drilled next year. But it will also look outside of the Taranaki Basin.
"(Taranaki) is obviously the core of what we have at the moment. But it's not likely to be big enough to sustain the sort of business we want to grow," said Salisbury.
However, the company won't be targeting the much-hyped Great South Basin, offshore from New Zealand's South Island. Deep-water conditions and resulting high drilling program costs mean the company could potentially blow its entire budget on a single prospect, he said.
"It's a high-risk, albeit high-reward game and that's why the companies that have picked up those permits principally have been the likes of Exxon, OMV, Mitsui - big players with deep pockets," said Salisbury.
Copyright (c) 2007 Dow Jones & Company, Inc.
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