NZOG, flush with cash, targets undervalued assets

NZOG favours acquiring a series of smaller incremental assets.

NZ Oil & Gas [NZX: NZO], which has about $100 million of cash and no debt, is seeking to benefit from a slump in oil prices to hoover up undervalued energy assets.

Over the past year, NZOG paid $35 million for 48% of listed Australian company Cue Energy Resources which owns 5% of the Maari oil and gas field off Taranaki, adjacent to the Tui field where NZOG has a 27.5% interest. Cue also has an interest in the nearby Manaia prospect. Cue's directors opposed the bid, saying it undervalued its assets.

"We look for assets that are undervalued by the market," NZOG chief executive Andrew Knight told BusinessDesk. "It's a great opportunity for us. Cue has been a very successful execution of that strategy and we would like to be doing more.

"There are lots of opportunities every day that come across our desks. I would be disappointed if we haven't done something inside a couple of years. There's nothing on the table at the moment."

NZOG's focus is on gas, gas condensate or oil assets in New Zealand and Indonesia where it currently operates, he said.

"We want assets where we believe we can add value, so they have got to have a bit of life left in them, ideally producing assets where we think we can add a bit to get some upside," he said. "It's a combination of small companies that have cashflow or debt issues, or companies that have assets that aren't valued by the market like Cue, or larger companies that are deciding to exit a country."

NZOG favours acquiring a series of smaller incremental assets, although it could take on debt for the right asset, Mr Knight said. The bid to acquire as much as 100% of Cue for $70 million was "right in a sweet spot," he said.

Cue has completed a strategy review and is in talks with NZOG and cornerstone shareholder Singapore Petroleum about its future direction. NZOG expects to decide in the next six months whether it wants to increase its stake in Cue or retain its current stake with Cue potentially buying other assets, Mr Knight said.

NZOG shares gained 2.3% to 44 cents and have dropped 29% so far this year.