By Neil Ritchie
WHILE the trimming of budgets and possible deferment of drilling programs is almost inevitable for New Zealand oil and gas companies, some are being hit harder by the global oil glut and low crude prices than others.
Most offshore explorers are still proceeding with preliminary work program commitments involving such things as subsurface studies and seismic surveys – from the supermajors of Chevron and Statoil, Aussie major Woodside Petroleum and Austrian giant OMV, down to the smaller players such as listed New Zealand Oil & Gas and private company Todd Energy. But further offshore drilling schedules may suffer if low world oil prices continue beyond 2015.
It is a similar story onshore – some players such as Canadian listed junior TAG Oil and British listed Mosman Oil & Gas are still proceeding cautiously with planned shallow oil and gas exploration, appraisal and development.
“We have and will continue to review our work program based on the effects of the low oil price. At this stage we haven’t decided which projects will be deferred,” TAG Oil New Zealand country manager Max Murray told Oil & Gas Australia.
TAG’s main producing asset, the central Taranaki Cheal oil and gas field continues to produce about 1800 barrels of oil per day, plus a little gas and “revenue from these assets supports our exploration and development program.”
He added that, obviously, at US$100 per barrel, TAG could fund a more expansive work program than when oil was only US$50 per barrel.
The company’s present program includes drilling and/or testing more Cheal appraisal/development wells, either on a 100% basis, or in conjunction with fellow listed Canadian junior East West Petroleum.
TAG is also currently looking at re-entering the Cardiff-3 deep gas well but targeting shallower formations. It also has two commitment wells to be drilled at the nearby Sidewinder B wellsite, targeting shallow oil. The company has not laid off any staff yet.
Mosman has recently said it plans for some organic growth this year, with low oil prices bringing benefits such as exploration cost reductions but also opening up opportunities to acquire distressed assets and companies. In mid-January Mosman was still completing its takeover of MEO Australia.
Mosman is exploring the Kotuku oil seeps (the Petroleum Creek project) on the South Island’s West Coast.
Its near-term planned work program includes: flow testing of the Cobden Limestone at the Cross Roads-1 well; selected seismic acquisition focused on finalising drilling locations for identified larger, deeper prospects in the Petroleum Creek and Taramakau permits; drilling a well in the Murchison permit; and ongoing technical study work on MEO’s Australia permits.
Mosman is also planning to drill additional wells at Petroleum Creek and Taramakau later during 2015 once seismic acquisition has been completed, processed and analysed.
However, it’s a different story for cash-strapped companies such as UK listed Kea Petroleum and Canadian listed junior New Zealand Energy Corp.
Kea recently shut in production at its Puka site in onshore Taranaki. Over the last few weeks, Kea had been working hard to resolve mechanical problems with the Puka-1 well, while continuing to produce from Puka-2, but then decided to shut down the site given the global oil pricing environment. It also has insufficient working capital for many equipment repairs or updates, or much new exploration, certainly no new drilling.
NZEC’s production for December from its Copper Moki, Tariki, Waihapa and Ngaere (TWN) fields averaged only 155 barrels of oil per day, lower than the previous month. Contributing factors included a decline in the Copper Moki field, TWN well rotation, and insufficient gas to effectively lift each of the wells. Gas lift is an integral component in oil recovery in the TWN fields.
Also during December, production from the Waihapa- 2 well slowly declined to a stage that required intervention and repair of the jet pump, which is now enabling two shallow Miocene-aged zones to be tested individually and/or commingled.
The oil price slump has also negated the effect of recent cost saving initiatives – such as NZEC shutting its Vancouver office and, more recently, moving the holding company for its New Zealand subsidiaries from Singapore to NZ to reduce audit and financial administration costs by about NZ$50,000 per annum.
“Whilst the capital constraint continues to be serious for NZEC, we are very positive about our exploration acreage and mid-stream assets and are considering a range of options to refinance the organisation,” says the ever effervescent company chief executive, David Robinson.
“As the oil price recovers we are committed to developing our acreage through drilling new wells to realise NZEC’s full potential.”
But he admits this will depend on NZEC’s ability to put together a business combination or raise even more capital to achieve this.
And it is known that some NZEC personnel are moving to from full-time to part-time positions and that some staff who are leaving are not being replaced.
However, it’s NZEC’s capital raising announced during mid-December that has some in the industry scratching their heads.
Then NZEC announced it had organised a further C$850,000 of equity financing with New Zealand company Geoservices Ltd.
The non-brokered private placement offering of 17 million units, at a price of C$0.05 per unit, will raise gross proceeds of C$850,000. Each unit consists of one common share and one common share purchase warrant that enables the holder to acquire one common share at a price of C$0.07 per share until December 15, 2015.
All securities issued in connection with the offering are subject to a hold period that expires next April. The net proceeds from the offering will be used for general working capital for NZEC’s exploration and production development.
On completion of the private placement, Geoservices will own or control 17 million common shares, or about 9.05% of NZEC’s total issued and outstanding shares, and 17 million purchase warrants.
Assuming the exercise of the warrants, Geoservices could own or control 34 million shares or about 16.6% of NZEC.
Geoservices may also increase or decrease its investment in NZEC depending on market conditions or any other relevant factors.
Geoservices is actually an “associate” company of Greymouth Petroleum, this country’s second largest integrated energy player that owns and operates multiple oil and gas fields in onshore Taranaki.
According to the Companies Office website, Geoservices’ sole director – Peter Frederico Manuel Vidal Missingham – is Greymouth Petroleum’s group counsel general manager, as well as being a director of a myriad of Greymouth subsidiary companies.
This has led some industry commentators to wonder why Greymouth would take this indirect approach to gaining a significant stake in NZEC when it could certainly buy the whole of NZEC outright in an on-market purchase for about C$5 million.
“Is this move benign and why is Dunphy (Greymouth founding chairman Mark Dunphy) trying to gain leverage this way?” wondered one source.
“NZEC now teeters on the brink of oblivion, given its near record low share price and still insufficient working capital . . . if it collapses and just has to sell assets then Greymouth could sweep in, effectively take control, and pour more money into fully realising the potential of TWN and Copper Moki,” said a second.