NZ Oil & Gas (NZO)

[Dr_Who]

Phaedrus, can you give us your views on NZO's chart? Cheers mate.

[Phaedrus]

Here you are Doc. NZO remains in a downtrend that has lasted for 5 months so far. Trend-following active investors would have exited this stock back in July when the confirmed trendline was broken (large red arrow). Such investors would not yet have re-entered and would perhaps be waiting for a break above the current confirmed (red) trendline before doing so.

Those attempting to trade the secondary trends that comprise the downtrend could be using trendline breaks to time their entries and exits. The magenta and light-green lines mark these secondary trends, with small red and green arrows marking the associated buy and sell points. These traders would currently be holding NZO but would be watching it very closely - current price action being just a gnat's eyelash away from breaking the current confirmed trendline (light green).

Since mid October, NZO has been forming a "Symmetrical Triangle Bottom". 43% of these formations break out to the upside, with 57% breaking out to the downside, so they are of very little predictive value. An upside breakout would give a Buy signal while a downside breakout would give a Sell signal for short-term traders.

[Dr_Who]

Thanks Phaedrus. Your charts and comments are fantastic!

Oh, and welcome back. Where have you been? Holiday?

[upside_umop]

Bermuda,

NZO chairman's address to the AGM on 29 Oct. included these per bbl figures re Tui (in NZ$):

Production expense $17, Marketing $7, Dep and Amortisation $ 16

So cost before royalty and tax = NZ$40.

Using oil at US$45/barrel, royalty = US$5.6 or NZ$10.

Tax on profit = NZ$10.

All up cost and tax to NZO per barrel = NZ$60.

So profit to NZO = NZ$23/barrel.

Are the figures right?

If they are, Tui will need to be shut down if oil goes to US$30/barrel?

Yes, you are right about the profit. But as stephejame says, the 'cashflows' are more important.

So yeah...add back $16 to your original figures. Cash flow per barrel is more like $40 NZD...which is still around $150,000 per day in the bank account at 30,000 barrels.

[upside_umop]

Let's think this through.

NZO spends, say $100m finding and developing an oilfield. The $100m is then capitalised. This could come from shareholders' funds or it could come from borrowings.

Let's assume it comes from borrowings. As NZO generates revenue from the oil field, it sets aside $100m as amortisation of the oilfield. This is then used to pay off the borrowings.

Net net, NZO is no better off unless it used shareholders' funds to fund the $100m. In which case, NZO will have $100m in cash at the end of it all. It will then use the $100m to try and find a new well to replace the depleting one - otherwise, NZO goes out of business.

Remember dividends can only be paid from profits so amortisation and depreciation arec real expenses.

Well, to be honest, NZO wouldnt continue with development unless its going to deliver positive value to shareholders. Ie a positive NPV.

An NPV is based off a discounted rate which shareholders require. Its widely known that using some portion of debt is desirable as the interest is tax deductible and that interest is requires less risk than shareholders funds. This is shown in MM proposition.

NZO wont go out of business anytime soon with KUPE coming online. That answers that. Pike should still deliver a reasonable profit unless coking coal gets really hammered!

Your talking poo's that dividends can only be paid from profits! As long as they meet the solvency test and they're generating positive cashflows, dividends can be paid. In the long run yes...profits may catch up with cashflow situation. But again...its the cashflows that matter.

FYI Tui cost NZO around $45 million and has so far delivered in excess of 3 times that cashflow.

[Corporate]

Well, to be honest, NZO wouldnt continue with development unless its going to deliver positive value to shareholders. Ie a positive NPV.

An NPV is based off a discounted rate which shareholders require. Its widely known that using some portion of debt is desirable as the interest is tax deductible and that interest is requires less risk than shareholders funds. This is shown in MM proposition.

NZO wont go out of business anytime soon with KUPE coming online. That answers that. Pike should still deliver a reasonable profit unless coking coal gets really hammered!

Your talking poo's that dividends can only be paid from profits! As long as they meet the solvency test and they're generating positive cashflows, dividends can be paid. In the long run yes...profits may catch up with cashflow situation. But again...its the cashflows that matter.

FYI Tui cost NZO around $45 million and has so far delivered in excess of 3 times that cashflow.

Upside..you sum'd that up nicely. I was also going to mention the dividend comment.

[Wilkins_Micawber]

From todays update to NZOG website ....
"Given the continued performance of the field (TUI), the Operator AWE has advised that the proven and probable (2P) reserve estimate can remain at 50.1 million barrels, without the extra well."

Does any one know the significance of 2P staying the same without the extra well?

If the existing 3 wells can provide 50.1 and that had been previously expected from 4 wells, then could this be possibly be taken to be an upgrade by 1/3 (i.e. potentially nearly an extra 17 million barrels). Sounds extreme, and surely this would have to be officially notified...

[upside_umop]

This is good Wilkins, very good. It means no capital expenditure like the market was expecting to get the addition reserves. But it also leaves upside for more reserves by adding the extra well. I wouldnt think it would be 17 million barrels...as they are only drilling into an existing reservoir. Dont quote me on that though, maybe someone else can comment.

PPP certaintly likes the news, nice buyer or two building now at 25 cents.

[Balance]

Upside..you sum'd that up nicely. I was also going to mention the dividend comment.

Suggest you read the following :

http://www.worrells.net.au/factsheet..._Dividends.htm

Cheers.

[Mr Tommy]

This is good Wilkins, very good. It means no capital expenditure like the market was expecting to get the addition reserves. But it also leaves upside for more reserves by adding the extra well. I wouldnt think it would be 17 million barrels...as they are only drilling into an existing reservoir. Dont quote me on that though, maybe someone else can comment.

Maybe the decision of deferring the final Tui production well is because with oil at $45, its better to keep it in the ground, as many people have suggested.

So instead they can keep exploring in the meantime, and any new finds made will take a few years to develop, by which time oil should have recovered.