Daily ShareChat: New Zealand Oil & Gas

By Jenny Ruth

Friday 6th November 2009

First NZ Capital analyst Jason Familton says he has reluctantly lowered his expectations of New Zealand Oil & Gas because of the strong share price performance ahead of planned well drilling.

"We recognise the risk of significant outperformance of the share if, in paricular, either the Albacore or Hoki exploration wells are successful, Familton says.

The company is drilling four wells over the next six months with drilling of the Albacore well starting in November followed by the Hoki well and then two wells near the company's existing Tui field.

"We view the Tui near-field drilling (scheduled for late in the first quarter of 2010) as providing a nearer-term driver of earnings, given the ability for it to be tied back rapidly into the already producing Tui development," Familton says.

"However, given their relative size, the Albacore and Hoki exploration wells, if successful, are likely to have a greater positive impact on the share than the Tui near-field drilling, despite its higher chance of success," he says.

Familton has cut his 2010 forecast net profit by 29.4% to $16.2 million from $22.9 million to reflect lower earnings from 29.5%-owned Pike River Coal and interest costs. He has also cut his valuation from $1.53 to $1.41 to reflect higher capital costs at the Kupe development, expected to be commissioned late this year, and the falling value of the company's US cash holdings.

BROKER CALL: First NZ Capital rate New Zealand Oil & Gas as underperform (from neutral)

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