Capital markets firm Canaccord Genuity Friday initiated coverage on New Zealand Energy (CVE:NZ) with a "Buy" recommendation and $4.50 target price.
New Zealand Energy is engaged in the exploration, development and production of petroleum and natural gas assets in New Zealand.
The company's property portfolio covers nearly two million acres of conventional and unconventional prospects in the Taranaki Basin and East Coast Basin of New Zealand's North Island.
"New Zealand Energy has just begun exploration on a large land base in the heart of the Taranaki Basin," Canaccord Genuity analyst Frederick Kozak said in a research note.
"The current inventory of exploration prospects will keep the company active for at 12-18 months.
"Upcoming 3D seismic will further increase this exploration inventory and the company has exposure to a large potential unconventional shale play on the east coast of the country."
Kozak considers the oil and gas explorer a "pure play on New Zealand" adding that the company operated in a country with an attractive fiscal regime, a good tax rate and a stable government.
The fact that New Zealand is not self-sufficient in crude oil consumption, results in a desire to have a strong domestic oil and gas industry, the research report noted.
New Zealand Energy has realized early success in the heart of the Taranaki Basin, with the first two exploration prospects, Copper Moki 1 & 2 currently producing 1,300 barrels of oil equivalent daily. Two more exploration wells are being tested while the company expects to drill six more prospects in 2012.
Kozak believes that with working capital of approximately $69 million, positive cash flow and two Taranaki Basin blocks encompassing 160,000 acres of highly underdeveloped land, plus exposure to a large potential unconventional shale play "should give this company lots of running room for several years to come."
Canaccord Genuity's estimate of risked value is based on an active exploration program. The company has reservoir risk associated with currently producing reservoirs, and exploration risk associated with its drilling program.
New Zealand Energy is currently trading at $2.72 on Toronto's Venture exchange.