NZ Oil & Gas (NZO)

[mistaTea]

Well that’s encouraging, mistaTea, although we mustn’t count chickens before they are hatched.
This is like a David & Goliath story, and I’m afraid the company have now made themselves into some kind of adversary of minority shareholders by their actions. Trust lost is difficult to regain.

****


Our Independent Chair, Rosalind Archer, says in the recent report that exposure to Ironbark is available to investors by buying CUE.


But retaining my NZO shares through to drilling is what I really want.

Rosalind needs to refrain from giving financial advice. She is effectively saying - "Don't you worry about this disappointing offer that significantly undervalues NZOG...just take the money now anyway, and if you really want to still participate in Ironbark you can buy Cue's shares! I have no idea whether the share price of Cue is currently a discount to intrinsic value, but hey! You would probably still be just as well off! ".

That is insane. All that matters is whether or not 62 cents per share represents a fair value for NZOG. The fact one may be able to gain exposure to Ironbark through a different vehicle is completely irrelevant and just the executive clutching at straws to make the deal sound reasonable.

[Fabs37]

although we mustn’t count chickens before they are hatched.
AGREE
While certainly applaud the effort by a number of members to the enlightenment of particularly to small S/Holders.and good on you.
What should have been obvious to most astute investors, there are however aspects to this outfit apart from what i would call gall or chutzpah.
That the policies of this Forum could get one debarred if mentioned.
So lets just leave it at They are not NOVICES.
Possibly they are also targeted for a T/O
Time will tell.
.

[RTM]

although we mustn’t count chickens before they are hatched.
AGREE
While certainly applaud the effort by a number of members to the enlightenment of particularly to small S/Holders.and good on you.
What should have been obvious to most astute investors, there are however aspects to this outfit apart from what i would call gall or chutzpah.
That the policies of this Forum could get one debarred if mentioned.
So lets just leave it at They are not NOVICES.
Possibly they are also targeted for a T/O
Time will tell.
.

We are lucky to have this forum to communicate with. Be lost without it.

[Vaygor1]

Cue presentation out yesterday.
Ref https://www.asx.com.au/asxpdf/201909...pw7t0jz6fv.pdf

NZO has one of their independent Directors also on the Cue Board. I'll leave the reader to draw their own conclusions from this.

Cue's Presentation and recent Annual report both headline Ironbark and provides further commentary. The light in which Ironbark is cast in Cue's literature is very much at odds to the near silence and gloominess of the prospect in NZO’s annual report and the SoA.


Example:

CUE's Annual Report for the year ending 30 June 2019, the CEO report and overview states:
"The prospect size and proximity to infrastructure of Ironbark means that, if successful, it has the potential to significantly change the value of Cue."

..... and now according to NZO’s SoA, it is a Frontier site. 'Frontier' is defined by the Oxford dictionary as "the extreme limit of understanding or achievement in a particular area".

[Vaygor1]

Another area of note where Cue and NZO have a different take from each other is the Wortel field.

The 2019 NZO Annual Report's headline graph under 'Production' shows the Wortel field fully depleted by 2029. No mention of any work being undertaken to extend the life of this field, or its current contribution that I can find anywhere in this report unless I've missed something.

Queue the Cue report (pun intended) for 2019. Right off the top under the CEO Report and Overview of Operation and Finances section:

"Planning is currently underway and development of the Paus Biru field will provide both a new revenue source and extend the life of the existing Oyong and Wortel field."

and

"Oyong and Wortel fields continued to be strong contributors to Cue’s cash flow in their first full year of production as gas only fields, with steady production and significantly reduced costs."


So what else are we missing from NZO?

[mistaTea]

So what else are we missing from NZO?

Yes. the recent NZOG reports have been scant on detail around Ironbark. Considering how effusive Andrew Jeffries was as recently as June about Ironbark (when announcing the farm-in agreement), I was hoping for a lot more colour around our largest exploration asset.

Not sure what else we are missing from NZOG....but I can tell you what we are missing from OGOG - a decent offer.

Here is a summary of how I would value the business for the purpose of a takeover (for what it is worth to anyone who might be vaguely interested in my thoughts on business value). My reasoning assumes the majority shareholder is acting in good faith, and understands that some premium must be paid to take 100% control.


NZOG cash balance at last Annual Report= approx $78 million (NZ$106M consolodated - NZ$28M Cue Energy share). Approx 47 cents per share.
Kupe = $24 million (low figure from Northington for this part is not unreasonable based on current reserves). Approx 15 cents per share.
Cue Energy: Current Market Cap = NZ$72 million. Price has increased somewhat after Ironbark farm in announcements, so this is probably a decent enough figure for what the market feels Cue is worth, given Ironbark is now fully funded and in play. NZOG share = NZ$36 million (22 cents per share).

So before we have even worked out what the exploration assets are worth we have 47c (cash) + 15c (Kupe) + 22c (Cue) = 84 cents per share. That is what I would consider a reasonable offer just for the existing assets that NZOG control.

Now let's talk about exploration.

Ironbark. It can be shown that a very conservative estimate of potential earnings attributable to NZOG for a 15Tcf find is NZ$1B. It would most likely be closer to double that. In 2017 Cue estimated the chance of success at 25%. We have strong reason to believe this probability of success has significantly increased due to BP, beach and NZOG farming in with large pieces of the equity each (especially BP).

But for our purposes, we can still use the 25% probability. 25% * conservative NZ1B = $250 million. But OGOG would be taking on all of the risk, so we can't expect them to pay all of that. Not even half actually.
A reasonable offer for Ironbark, given how advanced the exploration permit is and the encouraging signs so far, would then be about NZ$100M (61 cents per share).

Clipper. The Barque prospect is estimated to be about 75% of the size of Ironbark. However, there is more uncertainty given the current government policy. Also, the existing infrastructure near Ironbark does not exist near Clipper. So there would be additional costs to extraxct, store and ship the gas onshore.

For this reason we can't just say 75% of Ironbark. 50% would be more reasonable = $50M (30 cents per share).

Ok, so we have 84 cents (existing assets) + 61 cents (Ironbark) + 30 cents (Clipper) = $1.75 per share.

This is what I think a reasonable starting point would be for a majority shareholder to offer minority holders to take full control of this business.

Oh and, to whoever is reading this representing OGOG...now that you have learnt how to view the value of the assets through the eyes of a business owner - it's not too late to increase your offer appropriately

[airedale]

I hope that someone from the NZ Shareholders Association is reading this thread.

[Wiremu]

Also interesting that Beach Energy refers to Ironbark as one of their low cost - high impact exploration activities.

Another is Werry which is close to NZOG's Clipper. OGOG farmed into Beach's New Zealand prospect containing Werry on 24 July 2019 despite all of their negativity in the Scheme of Arrangement documentation. In doing so they effectively contradict all of their own talking points.

[mistaTea]

With regards to the valuation - something else that appears in the workings that is completely alien to me as an investor... (as in, I have never ever even heard of this in everything I have studied around working out business value...)

After working out what everything is worth....apparently we need to deduct 17 cents per share (roughly $28 million) from all of our assets. "Corporate Overheads" projected until at least 2027.

In other words, they expect us to pay for NZOG staff's salaries + some one-off Ironbark costs (as part of the deal with Cue) up until 2027, even though we would no longer be owners from October 2019.

***

Like, if you owned a rare painting that I wanted to buy - and let's say we could objectively agree that your painting is worth $1 million. But hang on! Not so fast! I am an art dealer, and you need to pay towards my salary for the next 10 years! Your portion of that is 150,000! (Don't worry thought - I did a NPV calculation and discounted my earnings at 10%!)
There is also a one-off shipping and storage cost of $50,000!

Sorry matey, you need to sell me your $1 million painting for $800,000. It's only.... fair after all *Cheshire grin*

[Lion]

Thanks mistaTea and others for your excellent analysis here.
There hasn't been a single post in favour of the SoA (as far as I know) nor any comment from our General Manager Corporate Services, John Pagani, on the subject.