Oil explorer holds its cash, eyes prospects
New Zealand Oil & Gas needs to retain its cash balance of more than $200 million to pay for possible exploration and field developments in coming years, and won't dip into it to pay a higher dividend.
The company yesterday reported operating revenue of $18.3 million for the December quarter, down from just over $25m in the December quarter of 2011.
Chief executive Andrew Knight said the company was maintaining a "significant cash reserve" while it looked at investment opportunities in Indonesia and Tunisia, as well as lifting activity in New Zealand.
It signalled it was likely to pay an interim dividend, after last year paying a full-year dividend of 6 cents a share. That could be broken into two payments, but the board had yet to finalise the amount.
Knight said the dividend level was "at a fair level" and so would not increase.
The company looked at its cash balance when considering dividends, but also at the investment opportunities on the horizon.
"At the moment we have some fairly significant opportunities . . . both in Indonesia, New Zealand and Tunisia. If those opportunities don't materialise . . . then we would need to look at the efficiency of the balance sheet," Knight said.
"We don't want to retain cash simply for the purpose of retaining cash - that would be the wrong outcome for shareholders."
The company believed that money could be invested to get "superior returns" for investors.
If everything went well, it would invest its $200m cash balance in the next five years, but would get "considerably more" than that cash balance back within the five years and be faced with the challenge of reinvesting again.
"We need to have a solid domestic production [in New Zealand] - that provides us with the credibility and cashflow to create diversification [overseas]," Knight said.
For example, if the partners went ahead with the possible Cosmos development off Tunisia, the payback on that cost would be a year to 18 months - similar to the Tui field off Taranaki, which paid back its costs in just nine months.
The investment decision on Cosmos is expected in March.
For the latest December quarter, the company reported $6.9m from the sale of oil from the offshore Taranaki Tui field. It has a 12.5 per cent stake in Tui.
It also posted revenues of $11.4m from the sale of Kupe gas, LPG and light oil. It held 15 per cent of the Kupe field.
The company was also expecting to get more sales from Kupe in future by lifting the gas production rate, adding about $6.7m a year, with about half of that expected in the year to June 2013.
Tui field production is slowly declining after a spike soon after it started production in 2007 when it hit about 50,000 barrels a day.
The average daily production was 4676 barrels in the December quarter, down from about 5600 a day a year ago.
Earlier this week, the firm announced plans to try to lift production through the Tui facilities by drilling another development well at Pateke 4H, near an existing production well, Pateke 3H.
It also has a share in the planned Oi prospect northeast of Tui.