Pike River to cause 'significant accounting loss' for NZOG

New Zealand Oil&Gas says it could be more than a year before it knows how much of its investment in Pike River Coal, which it put at nearly $150 million, can be recovered.

An explosion ripped through the Pike River mine on the West Coast on November 19, and 29 men lost their lives.

NZOG, which has a shareholding of nearly 30 percent in Pike River, appointed a receiver to the Pike River in mid-December.

In its activities report for the quarter to December 31, NZOG said it would incur a significant accounting loss for the six months to the end of December, due to the Pike River situation.

Despite that, NZOG's balance sheet remained strong, with good cashflows from its Kupe and Tui operations, which produced operating revenue of $16.7m in the latest quarter, NZOG said today.

It was owed around $64m in loans by Pike River, and its shareholding cost $82m.

The value of the Pike River shareholding was "very uncertain", NZOG said.

"Our shareholding may still have some value (and we are working to address that), but shareholders are at the end of the line when it comes to getting something back on their investment."

Last May, NZOG advanced $US29m of first ranking secured convertible bonds to Pike river, as the mine struggled to meet production and financial targets.

Last September, with Pike River facing cash flow difficulties, NZOG provided a further $25m short term working capital facility.

Before the explosion $13m of that was drawn down by Pike River to meet its wages bill and other ongoing costs. After the explosion the NZOG board agreed to provide Pike River with a further $12m under the working capital facility.

"At the time, everyone was still hoping that the men underground were alive and awaiting rescue. Without our $12m, PRCL (Pike River) was broke -- and facing insolvency at the very time it needed to focus on the rescue effort," NZOG said.

"The balance remaining of this $12m is now funding the receiver's ongoing work. The NZOG board believed -- and continues to believe -- that providing the $12m was the right thing to do commercially and ethically, based on the information that we had at the time.

"We have received a great deal of shareholder correspondence on this issue, which runs 9 to 1 in favour of NZOG's actions."

NZOG also said its view was that its share price had declined by more than the total value of its Pike River investment, and on top of that the share price had not reflected the strong rise in international oil prices or an increase in reserves at the Kupe field.

November 19 was a day that would never be forgotten, NZOG said, but it must move on.

"In 2011, NZOG will be doing everything it can to grow its oil and gas business, recover value from its PRCL (Pike River) interests and re-build shareholder value."

The Kupe gas and oil field and the Tui area oil fields were benefiting from oil prices that hit two-year highs during the latest quarter. The operating revenue for the three months to December was made up of $7.8m from Tui and $8.9m from Kupe.