New Zealand Energy Corp. (CVE:NZ) (OTCQX:NZERF) has managed to secure the $15 million it needed to complete the acquisition of three petroleum mining liceneses in the Taranaki Basin from Origin Energy (ASX:ORG), putting the junior oil and gas play one step closer in its transformative strategy to improve cash flow and production.
The company told investors Thursday it will undertake a non-brokered private placement of up to $15 million, with the offering of up to 45.5 millon subscription receipts scheduled to close by the end of this month.
New Zealand Energy, 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 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 would see L&M invest $18.25 million, to be put toward the acquisition of the assets from Origin.
The proceeds from the subscription receipts, which would be issued at a price of 33 cents apiece, would also go toward completing the purchase of the Origin assets, as well as to general working capital.
Each subscription receipt would be convertible into units of the company, consisting of one common share and one half of one share purchase warrant. Every whole warrant would be good for one additional share at a price of 45 cents each, for a period of one year following the closing of the offering.
The new funds will be held in escrow and released on closing of the acquisition, New Zealand Energy said, adding that if it is unable to close the deal, the proceeds will be returned to subscribers. The private placement still needs the approval of the TSX Venture Exchange.
New Zealand Energy said last 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.
Shares of the company were lately trading at 38.5 cents in Thursday morning deals, down more than 8 per cent after gaining as much in the previous session. In the last month, its stock has picked up more than 64 per cent as investors eagerly anticipate the benefits of the Origin deal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.