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  • New Zealand Energy One Step Closer To Closing Origin Deal With Significant Funds Secured From JV Agreement 0 comments
    Jul 30, 2013 3:15 PM

    New Zealand Energy Corp. (CVE:NZ)(OTCQX:NZERF) is entering a 50/50 split joint venture agreement with L&M Energy Limited to explore, develop and operate the assets it is about to acquire from Origin Energy -- the Tariki, Waihapa and Ngaere (NYSE:TWN) petroleum mining licenses, as well as the Waihapa production station and associated infrastructure.

    Shares of New Zealand Energy picked up more than 3 per cent in early deals Tuesday after the news was announced, which will see L&M invest $18.25 million, to be put toward the acquisition of the assets from Origin.

    The parties said they intend to finalize definitive agreements shortly, with the aim of closing the deal at the same time as New Zealand Energy wraps up the $33.5 million acquisition of these assets from Origin Energy Resources, which has been underway since last year.

    New Zealand Energy will become the operator of the licenses and the Waihapa station once the deal with Origin is closed, while decisions related to exploration, development and operations of the Waihapa assets will be made by management committees with equal representation from both New Zealand Energy and L&M Energy, the parties said in the release.

    "L&M Energy's $18.25 million investment is a significant show of confidence in NZEC's exploration and development plans for the TWN Licenses and Waihapa Production Station," said CEO John Proust.

    "With the $18.25 million purchase commitment from L&M Energy, NZEC is continuing to pursue a number of strategic options to fund the remaining $12 million required to close the acquisition of assets from Origin and add to existing working capital."

    New Zealand Energy says the joint venture and acquisition, which will add to its existing production portfolio in the Taranaki Basin, will provide "significant benefit" to its shareholders, giving it the cash flow, infrastructure and inventory to support long-term growth.

    Indeed, it will immeditately increase the company's reserves by 150 per cent, with the addition of 1.07 million barrels of oil equivalent of proven plus probable reserves, with a net present value of $31.4 million before tax.

    The company is also banking on immediate production and cash flow with the reactivation of six existing Tikorangi wells using the gas lift system already in place, with output increases projected thereafter from the installation of the high volume lift.

    New Zealand Energy also highlighted the growth potential of the deal, with the new Tikorangi wells and uphole Mt. Messenger completions in existing wells. The acquisition gives the company a large inventory of development opportunities, it said, with access to exploration targets in deeper prospects.

    "LME has been exploring and operating in New Zealand since 1969 and brings financial strength combined with business and technical expertise to the joint venture," added Proust.

    According to the terms of the joint venture with L&M, New Zealand Energy will get $18.25 million, made up of half of the purchase price for the Waihapa assets, plus half of the company's costs incurred to date.

    The Canadian junior oil and gas play already controls 2.2 million acres of exploration permits on New Zealand's North island (including one permit pending), where it is producing oil from four wells. The company has also completed a natural gas pipeline from its Copper Moki well site to the soon-to-be-acquired Waihapa production station, and is considering options to tie-in Waitapu-2 to the station. The oil producer is not yet generating cash flow from its natural gas production, with the Origin deal set to make this goal a near-term reality.

    Earlier this year, the junior oil and gas company announced the decision to delay further drilling to focus on the completion of the acquisition of assets from Origin Energy, while also undertaking a number of reservoir and production tests in recent months with the aim of optimizing output and recovery from its existing wells.

    The joint venture agreement announced today is still subject to government and regulatory approvals, as well as the remaining funds required to close the Origin deal. Once both transactions are closed, both New Zealand Energy and L&M will each own 50 per cent of the licenses that stretch across 23,4049 acres in the Taranaki Basin of New Zealand's North Island, as well as 50 per cent of the station and related oil and gas gather pipelines.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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