Infratil enters exploration arena

Infratil is moving on "upstream", saying it has invested in an 11 per cent stake in oil and gas explorer Austral Pacific.

Austral Pacific has sold the shares in a placement, with Infratil buying in at $3.60 a share, investing just over $9 million.

Its shares have traded on the NZX at prices ranging between $3.80 and $4.30 this year. Infratil is also getting 1.228 million unlisted Austral warrants as part of the deal. These allow it to buy additional shares in Austral Pacific at US$3.50 ($3.66) each any time in the next year.

Infratil's energy investments are its 35.2 per cent stake in TrustPower, the fifth-largest power company in New Zealand, with a generation business and retail customers. It also has a 20 per cent stake in an Australian green energy producer, Energy Developments, and a share in Victoria Electricity.

This is its first foray into oil and gas exploration, known in the energy sector as the "upstream" part of the business.

Company founder and Infratil chief executive Lloyd Morrison said in August that there was little scope left in New Zealand for new Infratil investments, with further infrastructure privatisations off the political agenda of both major parties.

Infratil's recent investments have been in airports, with it spending $46 million buying Kent International Airport in Britain.

Infratil's share price has increased this year from a January low of $3.29 to a high of $4.15 in mid-August. It shares closed yesterday up 2c at $3.86.

Austral's home listing is on the Canadian TSX exchange, and its shares are also traded on the AMEX board and the NZX.

Talk around its Cardiff deep gas exploration well has been positive for some time, despite final testing of gas flows yet to be completed. It is the field operator, with state-owned energy company Genesis owning a 40 per cent stake in the project. Genesis wants gas from wells such as Cardiff to burn in its power stations.

Bruce Harker, executive director of Infratil's management company Morrison and Co, told the stock exchange to expect the company's exposure to the upstream sector to stay modest.

"The recent lift in New Zealand gas prices are likely to be sustained and this should allow profitable development of smaller onshore gas fields."

Infratil also believed that the Government would increasingly pressure permit holders to meet their indicated exploration plans and that this would result in smaller exploration companies seeking additional capital. This would "provide acceptable entry pricing for investors".

Crown Minerals asks companies to bid for the right to explore for oil and gas. Explorers do not pay a lot for the permit, but the winner is the one that promises the most work, usually seismic research or drilling.

This is where the big drain on resources happens, with explorers looking to "farm out" stakes and bring in partners to help pay for expensive drilling programmes.

"Infratil would look to support Austral Pacific should it require capital to maintain its interests in successful discoveries as these move from exploration to more substantive long-term production infrastructure investments," said Harker.

He also said that in the short term "no specific linkages are seen between Austral Energy and Infratil's other New Zealand energy sector investment at TrustPower".

* Infratil chairman David Newman, who is also chairman of Austral Pacific, was excluded from taking part in its consideration of this investment, said the company.