New Zealand Oil & Gas shares are at "ridiculously low levels", says outgoing chairman Tony Radford.
The answer is to expand production through the drill bit and at yesterday's annual meeting NZOG laid out its vision to lift exploration spending to US$35 million (NZ$43m) a year by 2017, drilling three to five wells a year.
It is an ambitious target for a company that has not drilled a well since 2009. NZOG is a partner in one well in Indonesia this coming summer, and hopes to drill one and possibly two wells in New Zealand next summer, if it can get a drilling rig.
NZOG shares traded at 86c yesterday, and hit a trough of just 62c about a year ago.
"Most [broker valuations] are north of a dollar . . . but a lot of oil companies on the ASX are trading at a discount to net asset value, so we are not alone. But that doesn't make us any happier," Radford said.
Most share analysts have a valuation of about $1 a share for NZOG, with Macquarie at the extreme, at $1.27 a share and Credit Suisse the lowest at 95c.
NZOG chief executive Andrew Knight agreed the company's shares were undervalued.
"Our exploration isn't getting valued at all," Knight said after the annual meeting in Wellington. "If we were valued compared with our peers in Australia, we would be 30 per cent to 40 per cent higher."
Radford pointed out that a large chunk of the NZOG asset base was cash, with a net cash balance of $154.3m, and to discount that was "between hurtful and ridiculous".
"When you have cash of $1 but the market is saying that is worth 70c a share, well, that is a challenge. So we have to turn that cash into something more dynamic."
The shares had dropped partly because of NZOG's 29.4 per cent minority stake in the failed Pike River Coal company after the 2010 mine explosion, and partly because of "market sentiment".
"And the oil price isn't US$140 a barrel and rising any more," he said.
Oil hit US$140 a barrel in 2008, but slumped after the global financial crisis hit and was trading at about US$109 a barrel yesterday.
"We have to get involved in new discoveries," Radford said, otherwise they were sitting on "lazy money".
NZOG is aiming for exploration spending of US$35m a year by 2017 and Radford said they could probably pay for that out of "production profits" from its existing stakes in the Tui and Kupe fields.
Knight said in New Zealand, the equity market was driven by dividends, even though NZOG shares were yielding about 10 per cent gross.
Exploration companies were valued on production rather than potential and if exploration success did not push up the share price, they could become a takeover target, he said.
The three to five wells would be joint venture partnerships with other investors.
Its next well is as a joint venture partner in an Indonesian prospect called Kisaran in Sumatra, where drill site construction is under way, with drilling to start by the end of the year.
This month, NZOG confirmed plans to drill the Kakapo prospect, off the South Taranaki coast, "when a suitable drilling rig can be found".
Knight said the potential of Kakapo was "several times" the size of the existing Tui field. Fairfax NZ
- © Fairfax NZ News
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