New Zealand Energy Corp. (CVE:NZ)(OTCQX:NZERF) has finally finalized the purchase of assets from Origin Energy (ASX:ORG), furthering its plans to focus on lower-cost exploration and production that is close to infrastructure in its bid to bolster cash flow. The consideration for the purchase, which will significantly add to its reserve base, was also revised lower.
The deal, which remains subject to a financing condition and government approval, includes the the Waihapa Production Station and associated gathering and sales infrastructure, as well as three net petroleum licenses in the main Taranaki Basin production fairway totaling 23,049 acres.
The acquisition is expected to close by September 20 this year, according to a statement released Monday, and is expected to increase the company's proven and probable reserves by 303 per cent, while the value of the reserves is anticipated to jump to $85.5 million.
New Zealand Energy's four wells in the Taranaki Basin, consisting of 3 Copper Moki wells and the Waitapu-2 well, are producing light oil that is trucked to the Shell-operated Omata tank farm and sold at Brent pricing. The company has also completed a natural gas pipeline from the Copper Moki site to the soon-to-be-acquired Waihapa Production Station, and is considering options to tie-in Waitapu-2 to the station, which is now ready for gas processing, oil handling and water disposal, said the company. 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 its 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 as it was hit by well declines.
On Monday, New Zealand Energy said it commissioned Deloitte to prepare an independent assessment of reserves and resources attributable to the new resources from the Origin acquisition.
Proved and probable reserves were estimated at 1.85 million barrels of oil, 1.45 billion cubic feet of natural gas and 50,700 barrel of natural gas liquids, altogether consisting of 2.14 million barrels of oil equivalent. The reserves are projected to have a net present value of $62.9 million, assuming a 10 per cent discount rate.
Contingent resources were estimated at 1.16 million barrels of oil equivalent, with prospective resources seen at 23.54 million barrels of oil equivalent. The company noted, however, that these resources and reserves will not be attributed to its total until the acquisition is closed.
The purchase price for the oil licenses and infrastructure has now been agreed at $33.5 million, with no additional adjustments, compared to the initial price set in May last year of $42 million plus adjustments.
The agreed price is made up of $30 million in cash, plus a nine per cent royalty on net revenues, and a $3.5 million cash payment to Contact Energy, in which Origin has a 53 per cent stake, New Zealand Energy said in its statement.
The New Zealand-focused company will retain 100 per cent production from all existing and new wells on the assets in all formations, subject to the royalty to Origin, which will relinquish all other rights on the licenses.
"Negotiations over the past year have resulted in a revised purchase price and a simplified sale agreement," said CEO of New Zealand Energy, John Proust. "The additional time for review has ultimately proved beneficial to NZEC and its shareholders. The extended technical review of the TWN Licences has identified reserves that will more than quadruple NZEC's reserve base, plus significant oil and gas resources, that together underscore the prospectivity of the petroleum licences."
The chief said Monday that the company has developed a plan to deliver its liquid-rich gas production to market, and activate the gas lift to restart oil and gas production from existing Tikornagi wells on the to-be-acquired licenses. This is in addition to the new opportunities created from New Zealand Energy's existing wells and the Waihapa Production Station.
"Both the reactivations and uphole completions could bring near-term, low-cost production and cash flow to the company," the company said in its release.
"With these negotiations behind us, we are focused entirely on closing the acquisition and executing our exploration and business plans to demonstrate the value of this acquisition for NZEC's shareholders," said Proust of the transaction that is also expected to significantly expand its drilling inventory in the Taranaki, with exploration leads found in all of the formations.
The Waihapa station will give New Zealand Energy the ability to quickly tie in additional producing wells as they come, while also offering third party processing opportunities as it is the only open-access midstream facility in the Basin.
The deal needs only the deposit of the remaining $28.5 million of the purchase price into an escrow account, as well as government approval to close. When the acquistion closes, the company's current general manager of upstream operations, Mike Oakes, will take charge of the Waihapa station.
Shares of New Zealand Energy were halted on Friday pending the announcement early Monday, and resumed trading shortly after the release. Its stock was trading at 42 cents as of 10:30 am ET, jumping as high as 46 cents in early deals.
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