NZEC still needs funding solution for Origin assets purchase

Canadian-based oil and gas minnow seeks solutions to falling oil production that have contributed to low yields from onshore Taranaki.

Canadian-based oil and gas minnow New Zealand Energy Corp says it is still considering how to fund a $C42 million purchase of assets from Origin Energy while seeking solutions to falling oil production that have contributed to low net yields from its onshore Taranaki oil production.

The company saw production costs per barrel rise to $C62.08 per barrel in the three months to March 31, giving a field netback per barrel of oil of $C45.29. That compares with fellow Canadian producer TAG Oil, which reported "robust" netbacks per barrel of $C73 per barrel.

Both companies issued update statements to the Toronto Stock Exchange. While NZEC reported positive comprehensive income of $C1.3 million after two quarters of losses, earnings per share were recorded as negative 2 Canadian cents.

Working capital has fallen in the past year from $C70.4 million to $C17.5 million over the year to March 31 and accumulated losses now stand at $C22.4 million.

While the company has $US35 million on deposit against completion of production facilities at Waihapa and a clutch of petroleum licences, it reports it has spent $US27.4 million of a $US34.5 million line of credit taken out against the deposit.

"The company is considering a number of options to increase its financial capacity to carry out the acquisition of assets (from Origin) and other anticipated activities," chief executive John Proust says.

"While certain delays have been experienced in completing the acquisition and related documentation, the company has continued to engage with Origin in order to finalise certain terms contained in the Origin agreement.

"Management continues to work diligently with the aim of concluding this transaction during Q2 2013, subject to increasing the company's financial capacity in order to meet its commitments under the Origin agreement."

A credit facility with HSBC has been extended to September 30.

In the meantime, two planned wells in the company's onshore Taranaki drilling programme have been postponed in favour of focusing of increasing "near term production and cashflow while reducing exploration expenses".

Three of NZEC's most promising early wells, Copper Moki 1 2 and 3, have all required installation of artificial lift facilities to improve oil recovery but "production declines from the Copper Moki wells have been greater than expected and have prompted the company to initiative a reservoir review".

"It is possible that the higher decline rates may be due not to reservoir conditions but rather to mechanical issues, including was build-up down-hole."

Investigations had found wax cleaning had an impact on production rates.

Total production for the quarter was 30,179 barrels of oil, compared to 39,852 barrels in the same quarter a year earlier.

The company is also moving to own more of its capital equipment after increased production saw fixed production costs rise to 89 percent of total production costs.

"Permanent facilities are expected to reduce production costs considerably in future quarters," the statement says.

NZEC is still planning two exploration wells this year in its Ranui and Castlepoint prospects on the east coast of the North Island in the fourth quarter.