NZ Oil & Gas (NZO)

[bermuda]

[QUOTE=Mick100;218104][quote=croesus;218102]Hey.. Bermuda.... tell us more..." NZO won't go much lower I am old enough to know why"...

I'll jump in and answer your querry croesus, with the bermuda stock standard reply:

oil goes higher
read twighlight in the desert

Yeah,
I suppose if you believe a story, you have to keep believing in it.

Mick, Have you read the book? Skol hasnt...but to be fair he is beating me hands down.

Oil goes higher.

[Nitaa]

I'll be surprised if oil goes below $100
Oil markets are running on sentiment at the moment - not fundermentals
sentiment will change in the blink of an eye
We have just had 1.1 million barrels/day taken off market with the blowing up of the baku-tibilesi-ceyon pipeline in turkey (the same pipeline runs through Georgia) The demand destruction that every body is talking about will soon lose it's impact if it is found that inventories are still falling due to increased demand from asia. We are currently in the shoulder season when demand is seasonally lower between driving season and heating season in the northern hemp. Hurricane season is just around the corner
No, I can't see oil going below $100/bbl
,

Hi all and Duncan.

A bit happening since i last posted here. Duncans ears are pricked up and yes oil is taking a good beating at present.

What has changed? Long term not much however short term there is plenty. Chinas imports of crude oil has dropped 7% in July alone. Add that to a population of 1.3b and that is saying something. Next question why some may ask? 3 key reasons. China has recently reduced a lot of the subsideys there oil is now extremely expensive for the average Tom,. Dick and now Wong. Next is the holiday season where many factories shut down (plus factories especially in Bejing) therefore it adds to a reduction in consumption. 3rd is a general slowdown in overall growth and china coming of the boil of their dizzy 10% pa growth.

One other thing that cannot be dismissed is the lag effect (therefore sudden impact of fast rising crude prices bring a screaching slowdown in consumption). Guess what, oil prices are spiraling down only for consumers to start changing theri habits and therefore consumption increases.

As i pointed out in the past (even md can quote me here) i beleive that oil prices dropping to around the current levels are almost the perfect scenario for NZO and their repsective jv partners in tui. remember many were going wow oil hit $100. Now many think the sky is falling in coz oil is over $110.

However as one smart poster pointed out, nz currency is crashing which is offsetting the oil prices to an extent. initial capex for tui, pike and kupe pretty much taken care off. now nzo are creaming on the currency with its current and future revenue.

Ask yourselves this question. Look at a snapshot of nzo balance sheet today.. its prospects, revenue, oil prices. Where would you want to invest?

Fully support you Bermuda.. go nzo and you should remember. the sp today is irrelevant (whether $1.40 or $4.40) its only relevant at what you sell it for.

[Rif-Raf]

It is an imprecise science picking the bottom of a share price or that of a commodity, and it is just as hard to pick the turning point and the top of such prices.

Whilst it may appear obvious, it is important to maintain your nerve and confidence in your investment, as well as in the Board of Directors and management team. No matter what the environment, some investors will always need to sell as changing circumstances inevitability affects most of us during our lifetime. It is just a pity if the need to sell occurs at such a time as this, when fear and uncertainty prevail, and fundamental value seems to go out the window, and the value drivers that remain intact, seem to have been ignored or overlooked.

NZOG and Pike River seems to have displayed a SP performance that represents an inverse relationship to those of many other leading stocks on the NZX. I agree with earlier comments that at present, there are many shares that are undervalued. The art is in separating the wheat from the chaff, and looking through the distinguishing features of good value versus exceptional value.

In an environment where cash is king, a high degree of certainty around both cash generation and profitability is worth more than a low degree of certainty.
In this case we have:

1. A rapidly depreciating $NZ that will fall well beyond most forecasts of an average of 70 cents in FY2009.
2. Turnover for FY2009 that is likely to be close to $200 million (and rising thereafter), assuming NZOG's share of Tui production at 1.125 mmbl, at an average of US$120 and a conversion rate of 69 cents. Each additional 100,000 bbl to NZOG is worth approx NZ$17 million.
3. Any further downward pressure on the oil price appears likely to be more than compensated by Tui production outperforming expectations of 9 mmbl (or NZOG share of 1.125 mmbl), and further $NZ currency depreciation resulting in the $NZ average for FY09 being considerably lower than 69 - 70 cents.
4. Kupe gas presold to Genesis at contracted prices with built in indexing of this pricing i.e. price only upwards, no potential reset downwards.
5. Kupe LPG being substituted for imported LPG, therefore sold at world prices, and gaining a market share in excess of 20%.
6. Tapis oil out of Tui being of excellent quality and in short supply in south East Asia. Note that the Tapis premium has widened considerably in recent weeks.
7. Pike River has sold approximately 70% of life of mine production at world prices.
8. By world standards, a very acceptable break even point for the Tui oil JV and the Pike River coking coal operation.
9. Further front end loading of Tui cash flow is highly likely as a result of modifications to the FPSO in the 2008 calendar year. The SP effect of this has been noted by McDouall Stuart as 13 cps.
10. Further upward revision to the Kupe reserves highly likely (name a Taranaki gas field that hasn't substantially exceeded initial reserve estimates) and therefore the amount and duration of cash generation will increase in the near term.
11. The Brunner seam at Pike River overlays the Paparoa seam. The Paparoa seam is highly likely to be investigated, with reserves estimates and a mine plan determined within 18 months. Again, this is conducive to additional cash flow, and is likely to increase the value of the underlying asset.
12. Due to the depreciation of the $NZ, and the purchase of most Forex at much better rates than prevail today, the underlying value, or sunk investment in Tui, Kupe, and Pike is now worth more.

It always make sense to separate the assets out i.e. Tui, Pike, Kupe...etc, and compare these to the the valuation implied by the market. Over recent months, many brokers have confirmed the significant difference between the implied valuation and their own, with some suggestions that NZOG could now be the prey rather than the predator. It is not hard to see why this view is gaining currency. My view is that as Pike, and Kupe near completion, or start producing, the valuation gap will widen. Reserve and/or production upgrades to Kupe and possibly Tui are likely to further widen the valuation gap, and contribute to the trend of a significant valuation gap.

Pike River is a world class mine, with a very high grade of HCC, a transport agreement that allows some increase in mine production, and is sitting on additional reserves that have been valued at nil. A distribution of NZOG's PRC shares to NZOG shareholders won't ever happen as the realisation of the strategic premium from NZOG's 31% stake wouldn't be realised. NZOG have 2 directors on the Pike River board, so they ought to be able to gauge a good time to sell. Contrary to market perception and behaviour, HCC is on a very solid price track, with pricing expectations for FY10 above US$300 tonne. Pike River is a pure HCC play, whereas most other coal have a mix of both coking and thermal coal. So it appears that the Pike River SP is getting caught up in the general malaise around commodity and coal stocks rather than anything that is coking coal specific.

Dividends
There has been considerable comment about dividends. NZOG have announced that dividends relating to FY08 have been paid. The criteria relating to the payment of dividends for subsequent years have been outlined.

The low CAPEX for FY09 certainly seems to be conducive to payment of a healthy dividend for FY09, with broker expectations ranging from 5 cps to 10.9 cps. As the SP is at a significant discount to valuation, it is arguable that retention of cash to be used for dividends will not be fully reflected in the SP, and is therefore better paid out to shareholders. Certainly, the shareholders could do with it, cash flow warrants healthy dividend payments (i.e. an interim and a final) for FY09 (i.e. around or in excess of 10cps), and in a NZ context is very likely to underpin the SP which can only be a good thing, as it prevents further erosion of shareholder value.

For many reasons, including the quality and increasing nature of the cash flow, the anticipated positive trend in both reserves and the underlying value of the assets, together with other reasons that have been weighed up and outlined above, my view is that both NZOG and Pike appear oversold. NZ has a tendency to undervalue its shares, particularly those that it is not overly familiar with. It appears that this behaviour is more prevalent than ever, and in NZOG's case may require an outsider to recognise its real value. I hope this is not the case, and certainly the task of the Directors and management team is to support and facilitate the creation of value, and to communicate this to shareholders and the market, but they may remain challenged for this to be reflected in the SP.

Here is a link to an article that appeared overnight on CNBC, and which contains the view the commodity prices and oil will turn in the short term. http://www.cnbc.com/id/26158141

An example of some of the excellent posts on this thread!

[Mick100]

What has changed? Long term not much however short term there is plenty. Chinas imports of crude oil has dropped 7% in July alone. Add that to a population of 1.3b and that is saying something. Next question why some may ask? 3 key reasons. China has recently reduced a lot of the subsideys there oil is now extremely expensive for the average Tom,. Dick and now Wong. Next is the holiday season where many factories shut down (plus factories especially in Bejing) therefore it adds to a reduction in consumption. 3rd is a general slowdown in overall growth and china coming of the boil of their dizzy 10% pa growth.

.

china is still a controlled economy
in europe and US the only way to reduce demand is with a higher price - ie market forces determine supply/demand
However , in china the govt just gives a directive such as - "in july we will use 7% less oil than in the previous month" - simple as that
The govt controls imports through their control over the issue of foreign exchange. You need foreign exchange to import, and in china you have to get permission from the govt to get foreign exchange. In china the govt can control which, and how much , of each commodity is imported over any period of time.

digger mentioned some time ago that china oil demand was about to drop
I think china's reduced demand for oil and other commodities will be temporary - come oct-nov, when all the factories are up and running again it will be all on as they rebuild depleted inventories.

macdunk makes a valid point - china don't want everyone worrying about the price of oil while the games are on - they want the spotlight firmly on china


bermuda - I read twighlight years ago - one of many peak oil books i'v read
Don't you think it's about time you read another book - a different one !
,

[the machine]

with the falling nz $ and nzo expectation that will have to expand offshore to some degree,then one would hope the $ in the bank are not only in nz$, the value ofwhich seems to be going down daily

M

[duncan macgregor]

EVEN MICK minus that hundred is on to it. China is the reason oil is dropping right now. Stock up the tank at home guys the price of oil will reach $200 a barrel next year when China takes the rug out from under the Yank economy. I dont know how this will trend the NZO sp, but it will crash the market. NITA if you dont wake up to yourself you will find yourself with your knickers in one hand, and a cab fare in the other wondering what the hell happened. Macdunk

[Chalice]

EVEN MICK minus that hundred is on to it. China is the reason oil is dropping right now. Stock up the tank at home guys the price of oil will reach $200 a barrel next year when China takes the rug out from under the Yank economy. I dont know how this will trend the NZO sp, but it will crash the market. NITA if you dont wake up to yourself you will find yourself with your knickers in one hand, and a cab fare in the other wondering what the hell happened. Macdunk

Maybe yesterday was an attempt to finally sort out the remaining wheat from the chaff, trades are in unusuallly big blocks today...

[bermuda]

china is still a controlled economy
in europe and US the only way to reduce demand is with a higher price - ie market forces determine supply/demand
However , in china the govt just gives a directive such as - "in july we will use 7% less oil than in the previous month" - simple as that
The govt controls imports through their control over the issue of foreign exchange. You need foreign exchange to import, and in china you have to get permission from the govt to get foreign exchange. In china the govt can control which, and how much , of each commodity is imported over any period of time.

digger mentioned some time ago that china oil demand was about to drop
I think china's reduced demand for oil and other commodities will be temporary - come oct-nov, when all the factories are up and running again it will be all on as they rebuild depleted inventories.

macdunk makes a valid point - china don't want everyone worrying about the price of oil while the games are on - they want the spotlight firmly on china


bermuda - I read twighlight years ago - one of many peak oil books i'v read
Don't you think it's about time you read another book - a different one !
,

Hi Mick,

Twilight in the Desert. Still the best around. And I have met Matt. Not an egotist but a very well informed individual. (And studies butterflies in Bermuda as well! )

It is worth re-reading. I probably spend far too much time reading up on oil...well that is according to my daughter.

Oil, a precious finite resource.

[trackers]

Maybe yesterday was an attempt to finally sort out the remaining wheat from the chaff, trades are in unusuallly big blocks today...

Yep, very good rally today. Good overnight rise in the Brent due to much less than expected US supply stocks is probably a leading cause, and obviously NZO is tremendously oversold.

[peterfindlay]

Subsequent to my comments yesterday, ABN Amro have released updated research. NZO's website has been updated to incorporate this research, and refers to an upwardly revised valuation of $2.37 (previously $2.27). A couple of additional comments that may be of interest are:

"We believe NZO has been oversold recently.

Our downside case using US$38/bbl and PRC at market produces a valuation of NZ$1.73.
The Tui valuation, cash and tax loss components total NZ$1.45, higher than the current market price of NZ$1.42, effectively providing today's investors with NZO's Kupe and PRC investments for free.

We have valued NZO on current 2P reserves extraction from its investments, although we continue to believe NZO is well positioned to provide upside from successful exploration and development activity, and increases in reserves. We continue to believe NZO represents an excellent opportunity for investors seeking upside to value despite the recent softening of global oil prices."