NZ Oil & Gas cut to "hold" by research unit

Thursday 18th June 2009

New Zealand Oil & Gas, whose stock has gained 28% this year as crude oil rallied, was cut to “hold” at Morningstar’s Aspect Huntley research unit, which said the company has limited scope to extend its gains from current levels.

Shares of NZOG slipped 1.2% to $1.60 today. The shares are valued at $1.65 based on sum-of-parts and discounted cash flow valuations, Aspect Huntley said in a report this week. While NZOG will benefit from higher prices, is well resourced to expand and has some promising reserves, it is a relatively new player in oil exploration and would face a gradual decline in sales and earnings if it can’t find additional reserves.

NZOG is forecast to post profit of about $42 million in 2009, excluding unrealized foreign currency and derivative gains, rising to $52 million in 2010, the research firm said. The company is being cautious in committing its $200 million of cash to acquisitions to avoid overpaying, though as the price of crude rises, potential sellers will lift their expectations of asset values.

Brent spot crude has soared about 60% this year, part of a rally in commodities that’s been helped by China’s thirst for raw materials. Crude was recently at US$69.29 a barrel, up from US$43.29 at the start of the year.

The company’s 12.5%-owned Tui oilfield is likely to meet management’s full-year output forecast of 9.2 million barrels, while Kupe’s 2010 output will be a lower-than-expected 2.8 million barrels, reflecting the delay to production to the fourth quarter of calendar 2009, it said. Kupe output will rise to 5.67 million barrels equivalent in 2011.

Businesswire.co.nz

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