NZ Oil & Gas (NZO)

[Sehnsucht888]

No Oil this year... Some pastries and coffee, but I couldn't stay around to check for sausage rolls.

Pretty un earth shattering. Mostly a reword of what was in the publications, and very little in detail to the questions - pretty much as you would expect I suppose. They can't suddenly come up with lots of detail not previously provided.

Digger stood up - he felt obliged to, but nothing really to say.
Andrew Stewart stood up also, and asked a number of questions with little actual content in the answers - see above.


The move into Romania had some more information, or I hadn't picked it up before. I think it was a reasonable summary of events, and gave some dates for that venture.

In terms of FX hedging, and what is planned with Pike, what have they been doing, that was all the same old story.
FX - expenses are in USD, so may as well keep it there, they aren't FX experts, and aren't going to speculate.
Pike - will do what they see as best for the shareholders, for now thats sitting on it.
Doing - evaluating things. Nothing worth spending serious cash on - they want top assets, not riskier cheaper speculative options. So the cash just sits there.

Lots of upcoming drills.
The big prospect Barque got asked about. They have 40% now, but looks likely they will farm out some of that to get others involved on the costs I guess.
I should have asked about Bahama's but didn't... rats.. That hold many questions...

[shasta]

No Oil this year... Some pastries and coffee, but I couldn't stay around.

Pretty un earth shattering. Mostly a reword of what was in the publications, and very little in detail to the questions - pretty much as you would expect I suppose. They can't suddenly come up with lots of detail not previously provided.

Digger stood up - he felt obliged to, but nothing really to say.
Andrew Stewart stood up also, and asked a number of questions with little actual content in the answers - see above.


The move into Romania had some more information, or I hadn't picked it up before. I think it was a reasonable summary of events, and gave some dates for that venture.

In terms of FX hedging, and what is planned with Pike, what have they been doing, that was all the same old story.
FX - expenses are in USD, so may as well keep it there, they aren't FX experts, and aren't going to speculate.
Pike - will do what they see as best for the shareholders, for now thats sitting on it.
Doing - evaluating things. Nothing worth spending serious cash on - they want top assets, not riskier cheaper speculative options. So the cash just sits there.

Lots of upcoming drills.
The big prospect Barque got asked about. They have 40% now, but looks likely they will farm out some of that to get others involved on the costs I guess.
I should have asked about Bahama's but didn't... rats.. That hold many questions...

Um, by NOT addressing the FX issues they are speculating!

How many qualified accountants do they have working there?

That's such a weak cop out, & i'm glad i'm out of NZO.

That's what, around $40m down the gurglar in 2 quarters...

Sorry but that's really poor cash management, & if shareholders are happy with this, try converting the money lost into cps, & see what "dividend" you've been relieved of.

I suspose it was more snouts in the trough again at the AGM, with more cheap shares for "performance" was there?

[Nitaa]

Um, by NOT addressing the FX issues they are speculating!

How many qualified accountants do they have working there?

That's such a weak cop out, & i'm glad i'm out of NZO.

That's what, around $40m down the gurglar in 2 quarters...

Sorry but that's really poor cash management, & if shareholders are happy with this, try converting the money lost into cps, & see what "dividend" you've been relieved of.

I suspose it was more snouts in the trough again at the AGM, with more cheap shares for "performance" was there?

We have been over this before and i disagree with your thinking. In one sense you are correct that they have been hammered with the fx. In essence they are hedging anyway byt having money in different currencies. i.e. $USD and $NZD.

Since the money markets are a zero game, if they pay some supposed expert to play the fx then they may have been worse off. Seems like they are damned if they do and damned if they dont. Remember John Key predicted the $NZ to go to 40 cents. He also became bloody wealthy through x didnt he. Warren Buffet got creamed to the tune of a few billion gambling of the fx about 3 years ago.

Sorry Shasta, you are way wrong on this matter.

[bermuda]

No Oil this year... Some pastries and coffee, but I couldn't stay around to check for sausage rolls.

Pretty un earth shattering. Mostly a reword of what was in the publications, and very little in detail to the questions - pretty much as you would expect I suppose. They can't suddenly come up with lots of detail not previously provided.

Digger stood up - he felt obliged to, but nothing really to say.
Andrew Stewart stood up also, and asked a number of questions with little actual content in the answers - see above.


The move into Romania had some more information, or I hadn't picked it up before. I think it was a reasonable summary of events, and gave some dates for that venture.

In terms of FX hedging, and what is planned with Pike, what have they been doing, that was all the same old story.
FX - expenses are in USD, so may as well keep it there, they aren't FX experts, and aren't going to speculate.
Pike - will do what they see as best for the shareholders, for now thats sitting on it.
Doing - evaluating things. Nothing worth spending serious cash on - they want top assets, not riskier cheaper speculative options. So the cash just sits there.

Lots of upcoming drills.
The big prospect Barque got asked about. They have 40% now, but looks likely they will farm out some of that to get others involved on the costs I guess.
I should have asked about Bahama's but didn't... rats.. That hold many questions...

SS,
When you say "they aren't FX experts, and aren't going to speculate" I take it you mean that NZOG have taken appropriate steps to Hegde.( i.e they are not going to speculate/gamble on currency movements )

Is that what you meant? or did you mean they don't hedge. Sorry to be pedantic but I am interested in this.

Anyone else got a comment on NZOG's FX policy ?

[upside_umop]

Bermuda,

They are hedging in that they hold USD and the majority of their operating expenses and exploration costs are denominated in USD. If they hold NZD and the USD appreciates, its costs relatively more in NZD to operate...by having the arrangement they have now, it 'hedges' them so they dont win or lose...(in the sense of the oil game - their primary business).

They could hedge in the way of options. Options however, as you know, options are you usually written by financial institutions and they, the banks, in the long run usually make the money (they wouldnt write them otherwise would they?). Unless that institution happens to be run by a bunch of 'pure' academics who think they can forecast volatility better than market...cough cough scholes, merton et al..cough cough LTCM.

I'm quite close to starting a competition up. Who can guess the future rate movement one month in advance...for 12 months. There should be a few keen fellows on here who want to participate, given they're so open about their expertise in forecasting. Could be fun, right? I think Nita mentioned a while back he'd be keen to back some odds

[shasta]

We have been over this before and i disagree with your thinking. In one sense you are correct that they have been hammered with the fx. In essence they are hedging anyway byt having money in different currencies. i.e. $USD and $NZD.

Since the money markets are a zero game, if they pay some supposed expert to play the fx then they may have been worse off. Seems like they are damned if they do and damned if they dont. Remember John Key predicted the $NZ to go to 40 cents. He also became bloody wealthy through x didnt he. Warren Buffet got creamed to the tune of a few billion gambling of the fx about 3 years ago.

Sorry Shasta, you are way wrong on this matter.

You are completely miss quoting me on this Nita

NZO say they don't speculate....

I say they have done NOTHING in 6 months!

The trend of the USD/NZD has been quite evident to ANYONE who has looked at it over the last 6 - 9 months.

To simply accept the fact they have lost close to there whole revenue in 6 months due to FX losses is unacceptable, & to say "we don't speculate" is either plain ignorant or borderline incompetent.

They lost $22m last quarter & simply have chosen to look the other way, again losing $17m more this quarter.

Now the USD/NZD is much higher than it's historical range & may well start to "correct", but my contention is by doing nothing they are costing there shareholders money.

It's NOT management's cash, it's the shareholders

If you're happy with this practice fair enough, but as an Accountant i find this absolutely unbelievable.

I've said my piece now

[percy]

the US$ is the currency of the oil industry.nzog sells oil in US$.
Drilling rigs and costs are all US$ so makes sense to have your cash in that
currency.
at tonight,s presentation david the ceo, who has worked in romania,
said he has some ideas he would like to look at ,without a lot of cost to
nzog.he felt the state owned oil company was using outdated
russian equipment,.

[fish]

Have just seen the new look nzo website

David Salisburys address was succinct but clarified a few points for me .

e.g-Tui oil has become a very well regarded product. We are very pleased with the outcome of a competitive process which has seen Shell in Australia take a forward sale contract for a large portion of Tui production in the 2010 calendar year. The terms are favourable, with a premium being paid above the regional Tapis crude benchmark.

The Tui area oil fields have already been a spectacular success and there is considerable upside potential. There are a number of attractive near-field prospects and at least two of them will be drilled this summer.

If the drilling is successful, any new discoveries could potentially be quickly developed through the existing facilities.

The new format and colours of the website is refreshing .

I like the recent analysts valuation of the current sp of nzo.
A successful drill ,Kupe successfully comissioned , prc producing-all quite likely to happen -could really set the sp off

[Sehnsucht888]

SS,
When you say "they aren't FX experts, and aren't going to speculate" I take it you mean that NZOG have taken appropriate steps to Hegde.( i.e they are not going to speculate/gamble on currency movements )

Is that what you meant? or did you mean they don't hedge. Sorry to be pedantic but I am interested in this.

Anyone else got a comment on NZOG's FX policy ?

Sorry if I wasn't clear or correct in my terms. Basically, my understanding is, they did no actual hedging, that they will not do FX conversions to move funds between currenecies with the aim of preseriving capital.
The 50 Miliiion draw down in NZD was done - in favourable terms according to DS - to cover tax costs, and the dividend leaving USD as they were. (I don't quite see the logic behind the div being part of a loan when they could have converted USD, I must admit..). The stance, as previously stated is to leave funds in USD as that is what their revenue and expenses are in. Perhaps a bit naive. But if they got a suitable candidate to invest in they didn't want to have to move funds back, and get clipped both ways.. Perhaps they tried to hard to be ready with USD for a purchase.

Not Andy D, but the other guy after a board seat seemed focused on this area as reason to vote him in. Seemed to plug his worth as a currency speculator and implied he could have saved the company big $.

Hindsight is a great thing. Some share prices in March were 100% up 2 months later. Some from June the same 3 months (some much more). I should have put loads into them, but there has always been pessamism / doubt on the recovery, and another big drop had been predicted. It didn't happen, (yet), so I can say I should have been all in in those specs, but who rarelly was to know. IF NZO had converted at 60c in Oct, thinking that was it, then it kept going down, they would have been crucified. Picking the bottom isn't easy, and there is no way they could have got conversions purfect. They may not have lost so much, but would have needed good advice, and I don't recall seeing any predictions of this...
rant rant rant....

I am suprised they didn''t bring some of it back. But as mentioned, maybe they expected to use more during the GFC, when as DS said they expected better pickings...

[Unicorn]

I found it an interesting and useful AGM. The issue of dividends did not come up at all, so I guess most shareholders feel the Board set the dividend at just the right level. There was not as much excitement as I would have expected regarding the summer exploration campaign. The handling of currency was probably the main point of contention.

As usual NZO Board Members and staff were readily available for quite some time after the meeting to informally discuss a wide range of matters. These are very approachable people, with a lot of detailed knowledge of the many projects that the company is involved with. I found this time extremely valuable in gaining a better insight into what the company has been doing.

There appear to be a number of new initiatives under way that cannot be announced at this stage - some may never come to fruition, both others should become clear over the next year. It is clear that NZO does not see itself as just a passive financial supporter of the projects they participate in - they use their considerable in house expertise to continually look at ways of improving value from all projects.

It looks like all of the $US holdings will eventually be spent in $US - they will probably never be converted to $NZ. Kupe will provide a new stream of $NZ income, to cover $NZ denominated costs (tax, royalties, dividends etc). Thus the real value loss due to exchange rate movements is very much less than it appears on paper (as the $NZ value of the cash holdings reduces, there is a related lessening in the $NZ value of future costs). And when the $NZ value, which I see as being supported by borrowing demand rather than by underlying fundamentals, corrects itself some of the paper losses will be negated.

Major investors seem to have a strong interest in NZO remaining an oil play, rather than a hybrid involving oil and currency trading where they have more difficulty understanding what is driving company value. My own opinion is that some of the $US holding should have been repatriated earlier, to cover $NZ costs.

The Board has maintained a commendable degree of financial discipline, in spite of having large amounts of cash available. It is clear that the cash strapped days of just a few years ago are still fresh in the minds of the Board, and they are acutely aware of the value of a dollar. Drilling rigs are being contracted at realistic rates - far below the peaks that were being charged around a year ago.

The Albacore prospect looks very exciting indeed. NZO has a 40% share, which is well above their normal limit of around 20%. But this is quite a shallow target and the ENSCO107 is close by, so it will be a relatively cheap drill. If the first well has any sort of success, there are at least a couple of other identified targets within the permit. Success in this permit could be extremely valuable to NZO - it has three times the share of any successful find here compared to Tui. We should get the initial well results before Christmas. If Albacore is successful, NZO could be faced with considerable expenditure to develop the field and put a new FPSO in place. The Board members I spoke to would love to face that challenge.

The new Tui exploration wells could lead to development wells being drilled and tied back to the Umuroa within 18 months, at relatively low cost. There appears to be a quiet confidence that further oil will be found within this permit - hopefully this summer will be successful.

PRC should get some indication from Liberty Harbor on new terms for their bonds in the next week or two. It is unlikely that Liberty Harbor will provide an extension as a goodwill gesture - some degree of cost is inevitable. It looks like NZO expect to offload their PRC holding in a year or two, once the mine is in production and the value has become more apparent. The Chairman did explain to a questioner that the PRC share price reaching $2.50 did not mean that there was an opportunity for NZO to offload its 30% holding at that price (which I thought was stating the obvious, but sometimes question time at an AGM is like that).