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  • New Zealand Energy Improves Production Costs As Higher Output On The Horizon 0 comments
    Aug 29, 2013 2:48 PM | about stocks: NZERF

    New Zealand Energy Corp. (CVE:NZ)(OTCQX:NZERF) is moving ahead with its transformative strategy to improve its cash flow and production as it nears the closing of the acquisition of three petroleum mining liceneses in the Taranaki Basin from Origin Energy, with the junior oil and gas company also working toward bettering its production results and costs from its existing assets.

    The update comes with the release of the Canadian company's second quarter results, with New Zealand Energy posting a loss of 2 cents per basic and diluted share, compared to a profit of 1 cent per share in the prior year period, as revenue, production and prices realized declined, while production costs increased sharply.

    The company, which has been strategizing to improve its operations, is working to close the acquisition of the Tariki, Waihapa and Ngaere (NYSE:TWN) petroleum licenses from Origin Energy as a means to generate substantially higher cash flow and production.

    The $33.5 million acquisition, which includes the TWN licenses, as well as the Waihapa production station and associated infrastructure, has been underway since last year, with the company moving one step closer to closing the deal after recently 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. The deal will see L&M invest $18.25 million, to be put toward the acquisition of the assets from Origin.

    New Zealand Energy said earlier this month that an "extensive post TWN acquisition work program" -- on which it will spend a total of $7.3 million this year -- will be conducted once the deal closes, to be made up of reactivation and re-completion of existing wells, in addition to up to eight new wells, including four targeting deeper, high impact targets. The acquisition, which will no doubt add to its existing production portfolio in the Taranaki Basin, is expected to give New Zealand Energy cash flow, infrastructure and inventory to support long-term growth. Indeed, the impact from the work program is forecast to give the company a 2014 exit production rate of 2,300 barrels of oil equivalent per day.

    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. Earlier this year, the company announced the decision to delay further drilling to focus on the completion of the Origin acquisition, 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.

    In mid-August, New Zealand Energy agreed with Origin to extend the deadline for meeting the financing condition for its deal by about a month, until September 30. The parties also agreed to extend the government approval condition deadline from September 13 to October 14, with New Zealand Energy to increase the non-refundable deposit under the agreement from C$5 million to C$6 million as a result.

    The company ended the quarter to June 30 with working capital of $9.5 million. It produced 18,573 barrels of oil in the latest quarter, compared to 55,226 barrels a year earlier, generating revenue of $2.1 million, net of a 5 per cent royalty payable to the New Zealand government. This compares to revenue of $5.9 million in the second quarter last year.

    Production costs during the three-month period totalled $1.6 million, or an average of $73.62 per barrel, generating an average field netback of $22.46 per barrel during the period. New Zealand Energy said Thursday that reduced production following the shut-in of its Waitapu-2 well "greatly impacted" its second quarter netback results, although this was partially offset by lower production costs tied to its Copper Moki site following the commissioning of surface facilities in May of this year.

    After the commissioning of the surface facilities, the company incurred direct production costs of approximately $165,000 to produce 4,740 barrels of oil, which amounted to $34.81 per barrel during the month of June -- significantly lower than the quarterly average of $73.62 per barrel.

    "Considering the proportion of fixed production costs reported for the quarter ended June 30, 2013, as well as netbacks reported in prior periods, the direct production costs per barrel is reflective of the economies of scale. Thus, further savings should arise from higher production levels from future developments," New Zealand Energy said in its release.

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

    Stocks: NZERF
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