Investment summary: Strategic haze lifting
Emerging from five years adrift while it tried to plot a coherent growth strategy, New Zealand Oil and Gas Ltd (ASX:NZO) is now showing early signs of turning a corner. New, recently established partnerships have served to sharpen NZO’s focus and populate a previously underwhelming forward pipeline. The challenge is now for NZO to prove the validity of its new-look strategy.
Strategy: Clarity emerging, not before time
NZO graduated from explorer to producer in mid-2007 on the back of a 12.5% interest in the 41mmbbl 2P Tui oil field. In early 2010, a separate JV commissioned the 74mmboe 2P Kupe gas-condensate field, in which NZO holds a 15% stake. Share price appreciation between these milestones saw holders of a large tranche of June 2008 $1.50 share options exercise en-masse, delivering NZO an un-mandated equity windfall of more than $190m. NZO has since struggled to deploy its war chest. Missed opportunities during the global downturn were exacerbated by questionable investments that were made over this time. Lack of strategic direction and execution has weighed on investor sentiment. However, there are now signs that strategic clarity and purpose are at last starting to emerge.
Outlook: Finally, action at the drill bit
Following a number of board and management changes during 2012, NZO has turned its focus back towards New Zealand. Farm-in deals and new awards since Q412 have seen NZO acquire stakes in seven new permits. With already-committed drilling at Tui, NZO will participate in at least three offshore wells in New Zealand during H213, with the likelihood of a number more into H114. Before then, NZO is participating in two wells in an onshore Indonesian permit (Kisaran, NZO 22.5%), the first of which has been completed and is currently being flow tested.
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