Cue sticks with 3-5 wells a year in hunt for 'transformational growth'

Tuesday 2nd October 2012

Cue Energy Resources is sticking with its strategy to seek "transformational growth" by involvement in three to five exploration wells a year, despite disappointments and ambiguity in such activities during the last financial year.

Commenting in the annual report, chief executive John Paton said Cue was also evaluating opportunities to farm in to known resources and producing assets for incremental value creation.

"The aim is to accelerate the building of substantial cash flows which may be reinvested in increased exploration activities or further asset acquisitions," said Paton. "We hope to be able to announce the successful acquisition of some of these assets in the next financial year."

Listed on the ASX and NZX, Cue's largest producing asset is the Maari oil and gas field in New Zealand, although it turned in a "disappointing" 269,680 barrels of oil equivalent last year because a string of technical difficulties forced five workovers in the course of the year.

Work to improve performance now "seem to be working," said Paton. "We are gradually seeing a reduction in the rate of production decline and substantially higher equipment uptime. Plans are being put in place to further appraise the greater Maari area which should confirm reserves additions in 2013 and result in additional production from 2014 onwards."

The much-anticipated Banambu Deep-1 exploration well on the Australian Northwest Shelf came up dry in June.

"The well ... would have been transformational for Cue had it discovered gas," said Paton, and Cue still regarded the nearby Caterina prospect, which could contain up to eight trillion cubic feet of gas, as worth drilling and working to identify other viable prospects in the five contiguous permits where Cue is involved on the gas-rich Northwest Shelf.

Despite an ambiguous result in Indonesia and the negative result on the Northwest Shelf, Cue had achieved its goal of participating in more exploration wells than in previous years to give the company a better chance of growing "to the next level," said Paton. "It is still my view that Cue needs to participate in around three to five exploration wells per year at affordable equity levels to give us a reasonable chance of transformational growth."

The annual report confirms plans to mobilise a rig in New Zealand mid-2013 to drill appraisal wells in the Manaia and Maari South areas, and to drill Mangehewa sands formations in both the Maari and Manaia prospects from the existing platform.

"There is the potential to identify up to 90 million barrels of additional reserves via this appraisal drilling, which may add material value to the company" and would result in increased production from the field in 2014.

The Whio prospect was the most likely to be drilled because it was lowest risk and closest to Maari field infrastructure.

Notes to the accounts also reveal a dispute over the Jeruk oil and gas field in Indonesia, operated as a joint venture with Australian and Indonesian partners, for which a maximum provision of US$5.3 million has been booked. Arbitration is scheduled to try and settle the dispute.

The company became debt-free last year and has cash on hand of A$33.7 million.

The shares were unchanged at 19 cents on the NZX yesterday, and have shed 32 percent this year.

BusinessDesk.co.nz

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