KEY POINTS:
Rising oil prices have seen New Zealand Oil & Gas lift its earnings forecasts for its key Tui and Kupe oil and gas businesses, and the company says tax credits mean much of the money will go straight to its bottom line.
The company released the estimates in a briefing to institutional investors yesterday.
It had previously said it expected operating ebitda (earnings before interest, tax, depreciation and amortisation) of $60 million from the Tui field in the June 2008 year, its first full year of operation. It now expects at least $70 million.
The previous estimate was based on an oil price of about US$45 a barrel but Malaysian Tapis crude oil, which serves as the regional benchmark, had been trading around US$73 lately.
But NZOG had made "conservative" estimates using a price of US$60 a barrel, NZOG chief executive David Salisbury said.
The price fetched by Tui oil over the period could turn out to be higher, further lifting earnings.
"But I'm conscious that the oil price is volatile and we want to give people a strong indication of where we sit, not have them feel that we're overstating the story," Salisbury said.
Combined earnings from Tui and the first flows from the Kupe field during 2009 were expected to be just over $30 million.
The lower figure anticipated a sharp decrease in production from Tui after its first year of operation. "That's the nature of these fields."
NZOG's estimates are based on current exchange rate levels for the 2008 year but on an average of US63c over the entire five-year period the estimates cover.
They did not incorporate funding of other activities including NZOG's Pike River coal mine.
"The extent that we might further fund Pike River would obviously draw on that cash," said Salisbury.
But after investing heavily for some time without posting significant profits, NZOG now had "quite a large tax shield".
"We're able to use those tax losses to offset corporate income taxes once we start becoming cashflow positive."
Last year the company reported a $2.3 million profit after a $2.6 million loss the year before.
Salisbury said although it was a board decision, higher dividend payouts were not likely, the company had a considerable debt burden and the anticipated cash flow would likely be used to manage that.
He did not give any further details about the delayed Pike River initial public offer.
Tui, which is scheduled to start production next month, should produce 50,000 barrels of oil a day at its peak. NZOG which owns 12.5 per cent of the field expects its share of production to be around 1.2 million barrels during the first full year.
NZOG shares closed a cent higher at 95c yesterday. NZOG options were up half a cent at 13.1c.
Black Gold
* New Zealand Oil & Gas has lifted its earnings forecasts for the Tui and Kupe oil and gas fields.
* It says Tui should earn it at least $70 million during the 2008 financial year.
* The company also says accumulated tax losses mean most of the cash will flow straight to its bottom line.
