NZ Oil & Gas (NZO)

[Dr_Who]

Shasta ..... can you get rid of that ACT hard man from your signature .... you know they are pack of pussy cats ..... your previous avatar seemed more representative of ACT anyway

LOL.. I think AMR has ROdney's face as his avatar.

[STRAT]

LOL.. I think AMR has ROdney's face as his avatar.

Hey Doc,
If you come to one of the Auckland Sharetrader drinking sessions you can meet AMR and then you will be even more bewildered by his new avatar.

Bring back the tea lady AMR

[Nitaa]

SC. I havent being following CUE however at 35000bpd extraction operating expenses is still less than $USD20 pb. So there is still a handy profit even at these levels.

If i recall the Tui JV secured the rigs for a bargain price of USD100k per day to lease the rig plus op expenses. The timing for securing the rig was impecable anbd if they had waited 12 months then they would have beeb paying 00% more.. Times that over say 7 years and the saving o the JV is over USD1b or or USD125m to NZO. Although we all would have liked to be getting USD150 pb for the first couple of years for tui overall the jv has done very well.

Some may be wondering why oil prices are plumeting. 3 factors come to mind. 1/ Obvious declining in demand. Not to get confused with supply. 2/ Traders. 3/ Most importantly inmo are the Hedge Funds.

Mamoth amounts of money are invested in these areas and imo are having the most significant impact on the drop in price of oil. It works both ways of course and this has added to the volatility of the commodity markets.

I would be interested especially from fundies or brokers on their thoughts with regards to hedge funds.

[OutToLunch]

This is an ominous read, and perhaps it's a case for the Tui JV to shut in some or all of their production for a year or two until the inevitable unfolds... 9.1% is an astonishing rate of decline.

http://www.postcarbon.org/nine_percent

I mean, why sell most of the oil now at relatively low prices when it could most likely be sold for much more in the not too distant future? NZO has a huge cash holding and no debt so the Tui cashflow could be eased right back for a while... call it saving up for a rainy day.

Not that I see NZO or most shareholders embracing this idea but if it were me selling a finite amount of premium-grade product, I'd be happy to wait for better prices in a year or three rather than pump it out as fast as I could right now when prices have fallen so far. OPEC are going down this road too.

[friedegg]

your going on as if theres no profit in it to still sell now for nzo?is awe the main operator in the same cash position to do the same?

[Sideshow Bob]

Agree OutToLunch. At the very least I hope they would be using prudence and taking the hammer off to sustain the field for the long term and maximum possible recovery.

Guessing that wouldn't be that easy to shut down all or some of Tui's production, as have a lease on the recovery vessel to trade off against. Also would have to get agreement from all JV partners.

[Nitaa]

I am with friedegg here. The next 10 years the oil price may continue to fall. In the mean time the jv are burning usd100k a day for nothing. In sayin that there must be a point even if still commercially profitable that they do shut down. I believe oil still has a long way to fall before the jv are in that position

In short, make hay while the sun is shining as the next 10 years we may end up with an average of around half the current price no matter how unlikely it is to occur.

[OutToLunch]

Yeah I agree, mine was a pretty simplistic view esp wrt. the fact that we have multiple entities involved, each with their own objectives and financial positions to consider, something I didn't mention above.

Yes Tui is profitable now and will still be at even lower oil prices, but I still can't help but feel that much higher oil prices will be here well within the next decade, perhaps even the next 2-5 years. Just as we saw an overblown (leveraged) spike to the upside earlier this year, I believe that we're now seeing an overblown (deleveraging) spike the opposite way. Meanwhile, if the IEA report to be released overnight tonight reflects the truth at all, the supply cushion that we now have thanks to the recession could well be shortlived as the world's major oilfields enter into terminal decline.

The Tui JV could cut production back such that ongoing costs are covered, but the bulk of the product is retained for better prices ahead... but then again we come back to the fact it's a JV rather than a single operator so I'm probably just flapping the old fella in the wind.

[Crypto Crude]

outtolunch-This is an ominous read, and perhaps it's a case for the Tui JV to shut in some or all of their production for a year or two until the inevitable unfolds... 9.1% is an astonishing rate of decline.

http://www.postcarbon.org/nine_percent

I mean, why sell most of the oil now at relatively low prices when it could most likely be sold for much more in the not too distant future? NZO has a huge cash holding and no debt so the Tui cashflow could be eased right back for a while... call it saving up for a rainy day.

Not that I see NZO or most shareholders embracing this idea but if it were me selling a finite amount of premium-grade product, I'd be happy to wait for better prices in a year or three rather than pump it out as fast as I could right now when prices have fallen so far. OPEC are going down this road too.

No need to shut down production. get into futures contracts instead as a hedge or to increase exposure to the upside...
In financial terms, a production shut down by halting revenues to take advantage of higher future prices could be achieved the same way as getting into a futures contract and go long. They could get into a contract where they could buy oil now for a fixed price with a settlement date in the future, and profit from the differential if oil prices are above the contract price...

I dont believe a forward contract would not work well because the contract price would not be adjusted enough for the future price (on big upside scope that many expect), but could be used as a hedge if prices fall further... these are the sorts of deals that should be made when prices are high..

In saying all of this "New Zealand Oil and Gas and Coal" is in the business of developing projects, and not in the business of getting involved with financial instruments. negatives of a futures contract---> unlimited downside.
Ive talked about the option to delay before, this is best used when companies are in pre development stage...

The costs of shutting production down at this stage would be substantial enough that heavy losses would follow...

stay away from financial instruments I reckon... dont shut production down I reckon...
chao...

.^sc

[Rabbi]

Whatever the debate, in the present Global environment cash is king and NZO is sitting on a pile of it. Nobody knows what is going to happen tomorrow, next week, next month, or next year. It is pure speculation, even by the experts. Prominent economist, Nouriel Roubini predicts the whole situation to get worse and he was the one who predicted this fiasco in the first place. In his opinion, fiscal stimulus from governments, particularly the US, who continually lowered interest rates to keep the boom going, only delayed the inevitable and exacerbated the crisis.

The market is obviously rating companies on a debt/ equity/ cashflow basis hence NZO has not taken the same hammering as PRC. PRC's problem is the falling price of coal, no cash flow, and they have to find another $10m.

Most of the Aussie junior Spec Oilers have taken a hammering. One of the worst is BCC, down from 35c to 6.5c. Reason; bugger all cash flow, just borrowed $50m, and the price of gas has fallen out of the sky.
All those comapnies that were flying high on hype are now crashing on the
sands of stark reality.