Mosman Plans to Acquire New Zealand's Upstream Assets from Origin Energy

Mosman Oil and Gas Ltd., the New Zealand (NZ) and Australia focussed oil exploration and development company, referred Tuesday to recent announcements on the potential acquisition of NZ producing oil and gas assets which include the Rimu, Kauri and Manutahi fields from Origin Energy Limited (Origin) (the Project or the STEP Project)

It is proposed that the Project will be acquired for a total consideration of $6.5 million or NZD 10 million (approximately GBP 4.2 million). Subject to funding Mosman is currently expected to own a 40 percent interest in the Project. Mosman expects to partner with a privately owned independent oil company, which will acquire the balance of the project interest.

The proposed acquisition remains subject to the Company entering into acquisition documentation and Mosman will provide further updates in due course.

Proposed Acquisition Highlights

• Proposed Acquisition of onshore NZ oil and gas assets
• The Project is expected to be operated under a joint operating agreement (JOA) and Mosman is expected to be the operator. The assets being acquired include the Rimu Production Station and two petroleum mining permits. The Project is expected to be renamed the South Taranaki Energy Project (STEP)
• Total expected consideration of $6.5 million or NZD 10 million (approximately GBP 4.2 million) to be paid in two tranches, the first tranche of $4.6 million (NZD 7 million) is expected to be payable upon completion of the acquisition and the second tranche of $2 million (NZD 3 million) is expected to be due six months following completion. A 5 percent deposit will be paid by Mosman upon execution of the relevant SPA. Mosman’s total contribution towards the consideration for its currently expected 40 percent interest in the acquisition is expected to be $2.6 million (NZD 4 million) (approximately GBP1.68 million), the first tranche being $1.8 million or NZD 2.8 million (approximately GBP 1.2 million) and the second tranche being $0.8 million or NZD1.2 million  (approximately GBP0.5 million). Mosman’s first tranche of consideration will be reduced by the deposit of $0.3 million or NZD 0.5 million (approximately GBP0.2 million), which is expected to be paid by Mosman
• The Project assets include fully operational and established oil and gas processing facilities, equipment, permits, excellent infrastructure, assignment of key employee contracts and the assignment of relevant commercial contracts including oil and gas sales contracts. The facilities were the subject to a major refurbishment in 2014 and since restart in October 2014 have been producing an average 603 barrels of oil equivalent per day (boepd)
• Origin is divesting the assets following a strategic review that the assets will be a better fit with a smaller Operator
• STEP currently produces oil, condensate, gas, LPG and electricity, which deliver several revenue streams with payments being received in both U.S. dollar and New Zealand dollar. The Project also includes:
  • 2P reserves of 1.9 billion cubic feet (Bcf) gas and 1.4 million barrels oil
  • 2C resources of 13.7 Bcf gas and 4.1 million barrels oil
  • Prospective resources upwards of 179 Bcf and 166 million barrels
• Historically the Project has produced over 10 Bcf (10.9 petajoules or PJ) gas and 1.58 million barrels oil
• Current production of 603 boepd (average production from October 2014 to July 2015) generates revenue of approximately $5.2 million (NZD 8 million) per annum at current oil price and exchange rates
• Mosman has identified 12 low-cost projects that are expected to initially significantly increase production at an estimated cost of $1.7 million (NZD 2.6 million)
• Mosman intends to finance the proposed acquisition through a combination of existing cash, sale of royalty on future production, and debt. In addition, equity may be raised for the acquisition or for working capital and to accelerate development of the Project
• The proposed acquisition, when agreed is expected to be conditional upon a number of conditions precedent including; Mosman providing reasonable assurance of its financial capability to pay the total consideration due for the Project assets on or before completion and the granting of certain approvals from the NZ Government before settlement

The Board of Mosman is well aware of the current oil price; volatility of oil price; and general equity market conditions. The STEP Project is being pursued for the following reasons.

• The oil price has made quality assets available at a good price. This is possibly the best time to acquire reserves and production, both of which are attributes of the proposed acquisition
• The proposed acquisition is in NZ$, which has seen an overall fall against the Pound and the U.S. dollar recently
• The oil sale price from production from the STEP is linked to Brent oil pricing, whilst the recent reduction in Brent oil prices is large in U.S. dollar; it is moderated in NZ dollar terms by the weaker NZ dollar
• This project currently produces more gas than oil; and gas is sold in the domestic market priced in NZ dollar, offsetting NZ dollar operating costs
• The proposed acquisition, following execution of the relevant documentation, will not be completed for some months, and should the oil price experience further volatility then the following effects/conditions apply:
  • if the oil price increases, then revenues will be higher and focus will be on increasing oil production
  • if the oil price falls below, and remains below, $40 a barrel for a period of 15 consecutive business days at any time between the date of execution of the agreement and the settlement, there is expected to be a requirement for parties to meet and discuss such an event
• In any event, following the initial 12 low cost projects, there is further potential in the short to medium term for production to be increased at low cost from existing wells funded from operational cash flow
• Larger production growth projects in future can be considered and funded from cash flow as/when oil prices increase

The Chairman of Mosman, John W Barr, said: “The proposed STEP Project is expected to be a transformational deal for Mosman as it is expected, upon agreement of the relevant documentation and completion, to deliver immediate production, reserves, facilities and cash flow. Numerous opportunities to increase production in the short term post completion have been identified and there is also significant upside production growth in the further development of the producing Manutahi oil field that has an identified oil originally in place figure of 30 million barrels.

“We look forward to providing a further update in the near term when the documentation for the proposed acquisition has been agreed.”