KEY POINTS:
New Zealand Oil and Gas (NZOG) is expecting its oil revenues from the Tui area in offshore Taranaki to top $100 million this financial year.
Chief executive David Salisbury told NZOG's annual meeting in Wellington yesterday that production from Tui had averaged about 40,000 barrels a day since oil began flowing on July 30.
Some technical modifications were needed to reach the 50,000 barrels a day target, which the company expected to achieve during November.
NZOG has a 12.5 per cent interest in the Tui area, from which 2.5 million barrels of oil have so far been shipped.
About 60km from the coast, the Tui Area Oil Project, operated by AWE, is being investigated as the possible source of oil that washed up on a Taranaki beach.
About 6cu m of contaminated sand has been removed from the beach.
Salisbury said the oil produced from Tui was a high quality sweet, light crude, but so far the amount of money earned from it was commercially sensitive.
During the September quarter NZOG had received US$7.5 million cash from Tui, he said.
That was significantly less than revenues earned as payments were typically received up to 30 days after delivery.
Forward revenue predictions were difficult, but a useful rule of thumb was that each barrel of oil earned roughly $100, Salisbury said.
With NZOG's share of production this financial year expected to be about 1.2 million barrels, the company expected its revenue from Tui to comfortably exceed $100 million in 2007-08.
Developed proved and probable reserves for the Tui area were put at 32 million barrels, with project operator AWE carrying out a study which would include evaluation of the economic potential of undeveloped reserves.
NZOG chairman Tony Radford said the cash flow being generated from Tui this financial year was earmarked in part to repay much of the bank loan NZOG used as the primary source of funding for the development.
The company also needed to meet its other operational costs and to be able to provide financial support , if needed, to the development of the Pike River Coal mine on the West Coast, of which NZOG now owns around 31 per cent, following an $85 million public equity raising.
NZOG's other major investment is a 15 per cent interest in the Kupe gas and condensate field development, also in offshore Taranaki, where first production is due in mid-2009.
Salisbury said NZOG's share of the Kupe development costs up to the beginning of October was about $50 million which was met from general sources of funding.
Remaining development costs were being funded through a $125 million debt facility with Westpac Bank.
He acknowledged the company had "recent disappointments" with the overseas Taranaki Hector, Taranui and Tieke exploration wells.
NZOG's current exploration portfolio was not as strong as the company would like. It remained committed to pursuing attractive exploration opportunities, both within its existing acreage portfolio in the Taranaki region, and elsewhere, Salisbury said.
Taranaki alone would not provide sufficient future opportunities for NZOG, and the company believed New Zealand had good remaining prospectivity for oil and gas.
NZOG was also looking at specific acquisition opportunities but could not yet talk about those.
"The economics for NZOG of exploring in New Zealand remain very good," he said. "New Zealand continues to be under-explored. Worldwide the hunt for acreage is on - yet New Zealand is still largely off people's radar screens.
"But we know that New Zealand has active hydrocarbon systems. There are eight identified basins, but only Taranaki has seen any significant exploration."
Salisbury said the company had been through a "transformational" period, with production beginning at Tui and the long-awaited float of coal mine Pike River.
NZOG shares closed down 1c at $1.04 yesterday, having ranged between $1.34 and 86c in the past year.
- NZPA
Tui tips
* The Tui Oil development is located off Taranaki.
* It was discovered three years ago.
* Oil began flowing on July 30.
* NZOG has a 12.5 per cent interest in the development.
* It intends to lift production from about 40,000 barrels a day to 50,000.
