New Zealand oil prospects: What are the two companies pitched as having big New Zealand shale acreage?

The Bakken formation in North Dakota has made plenty of millionaires, not just among the ranchers who owned those cold and dusty acres in the decades before shale oil production became feasible, but for those who invested early in the companies that made the best discoveries or gobbled up the best acreage.

And the Bakken is in the headlines every day as the key to US energy independence (or, at least, lessened dependence on oil imports), so it’s perfectly understanding that the copywriters trot out the name whenever they’re trying to sell the next big shale discovery — we’re always looking for the “next Bakken”, whether it’s in Argentina or Paris or Poland or, as in this teaser today from Christian DeHaemer, in New Zealand.

Ring a bell? Yes, we ran a piece on a shale oil teaser from Keith Schaefer way back in October, also using the same basic “Next Bakken” pitch … that particular stock hasn’t worked out well so far, with some weak drilling results (that’s an understatement — it’s down from about $1.50 to 35 cents), but, well, nothing about the energy exploration business is guaranteed or easy, right? I don’t know yet whether Dehaemer’s touting this same company, but I’m at least curious enough to feed the clues into the Thinkolator so we can find out for you.

Here’s the big picture tease, all about how the New Zealand shale is bigger and thicker than the Bakken and therefore hugely exciting:

“A massive shale formation found in the Kiwi Nation is so huge and untouched, the New Zealand Herald reports: ‘It’s literally leaking oil and gas’

“An independent report released in October 2012 says this shale field could hold more oil than the combined reserves of Chevron, ConocoPhillips, and Royal Dutch Shell…

“Geologists have discovered at least 300 spots where oil and gas are bubbling at the surface.

“These two companies (both trading below $10 a share) control over 5,000 square miles of the emerging oil field… and production has already started….

“On the North Island of New Zealand — about 268 miles from Auckland — sits the small town of Hastings.

“For decades there’s been nothing remarkable about this small port town… until now.

“Massive oil deposits surrounding Hastings have been found that are 10x larger than the infamous Bakken oil field.

“And the major permit holders to these deposits are two companies that I’m about to detail for you today….

“The Kiwi Nation’s Billionaire Dreams

“The geographical similarities between the Bakken and East Coast Basin are striking.

“And the government can already see the dollar signs.

“The Taranaki Basin on the North Island is already under development. So it’s clear the officials there are embracing fracking as a tool to their economic growth.

“‘I would love to see other regions experience the same economic boost, and fracking is one of the technologies than can allow that to happen.’ — Energy and Resources Minister Phil Heatley”

So … you can probably insert your own cautionary notes here: Every oil formation is different, there’s no guarantee that this shale oil will produce like the Bakken, the people of New Zealand might rise up against fracking, these are probably small companies without a lot of wherewithal to survive disappointing results, etc.

But that said, let’s see what Dehaemer’s clues are and try to ID the stocks for you. Here we go:

“New Zealand Bakken Opportunity #1

“The first opportunity you need to act on is an explosive growth stock that holds extensive amounts of oil and gas-laden land all over New Zealand.

“The last time they released news that they acquired new land for drilling… their stock shot from $.58 to $3.59 — a stunning 518% gain in just three months!

“They already control over 200,000 acres in the Taranaki Basin that hold nearly 78 million barrels of oil….

“They are snatching up land in the oil-rich East Coast Basin at a breakneck pace. Right now, they have the drilling rights to over two million acres. You didn’t read that wrong: Two million acres of land that are literally leaking oil everywhere.

“That’s huge! And it’s exactly what is going to shoot their share price into the stratosphere.

“They are slated to start drilling in an oil seep region of the East Coast Basin any day now…

“And when they hit oil, all hell is going to break loose with this company’s share price.

“… Their reserves are estimated at a stunning 22 billion barrels of oil by an independent research firm…

“Right now their stock is trading for less than a buck. This is a tiny company. But when they start pumping oil out of the East Coast Basin, their shares could easily balloon to $27 a share, according to some analysts.”

So … hoodat? Thinkolator sez that we are almost certainly looking at New Zealand Energy here (NZ.V in Canada, NZERF on the pink sheets). Yes, the same one teased by Keith Schaefer last Fall — though back then it was around $1.50 (stabilizing there briefly on the way down from $3.50 or so), and now it’s right around 35 cents.

When it comes to matching clues, New Zealand Energy did not trade at 58 cents on the Venture exchange before rising to $3.59, as far as I can tell — the lowest price between their 2011 IPO and the spike in 2012 was around 80-90 cents. But it did rise to close at $3.60 early in 2012, and it has certainly been well below 58 cents since then … and pretty much everything else is a spot-on match. Their holdings in the Taranaki Basin, which is on the west side of the North Island and is where pretty much all New Zealand oil and gas production has been taking place for decades, does indeed have “best case” resources of just under 78 million barrels (77.1 “Net Unrisked Prospective Recoverable” million barrels, per their latest presentation), and a lot more potential oil and gas that hasn’t been discovered. They recently invested more in this producing area, picking up some assets from Aussie giant Origin Energy (and perhaps further stressing their balance sheet, which, in addition to recent bad drilling results, seems to be part of the reason the shares are down).

The “New Zealand Bakken” bit, though, refers to their search for unconventional oil on the east side of the island — that’s where the 22 billion barrels number starts getting thrown around, though even a consultant shouldn’t be putting the word “reserves” next to that 22 billion, that’s what they have on their estimate as “Net Unrisked Undiscovered Petroleum.”

And it should perhaps be obvious, but I’ll say it anyway: “Undiscovered” oil is not as useful, nor nearly as valuable, as oil that you’ve found and can produce.

I’m certainly no expert on New Zealand oil, but this strikes me as now becoming an extremely levered play on New Zealand discoveries — they’ve made an acquisition to increase their current production from the Taranaki basin, an area where the ongoing search to replace dwindling large gas fields is certainly underway, but the market is giving them essentially no credit for that conventional oil and gas production, the market cap is down to about $40 million now, very, very small and not much more than they agreed to pay for the Origin Energy fields they’re trying to buy (they’re also using a line of credit for that, apparently).

That’s probably largely because they’ve rescinded their production guidance this year after having several wells disappoint (the four they’ve drilled this year have resulted in one “waiting for artificial lift analysis”, two dusters, and one with “completion pending” with “good hydrocarbon indications” … which is not what investors were looking for after they had hit on a few successful producing wells in a row. You can see the latest from them in their corporate presentation here or their latest quarterly press release here (both are from last month) — they have a lot of exploration blocks and some other assets, including the production equipment, they are producing from some of their conventional wells, but they’re running pretty low on cash and have a lot of exploration work to do before (if) they book any big reserves, particularly on those possible “New Zealand Bakken” assets. Production grew a lot in 2012 as they brought their first wells online, but that lack of production guidance for this year raises, it seems to me, some questions about how fast they’re going to burn through their relatively small pile of remaining cash — they spent about $40 million last year in exploring and acquiring blocks and equipment, and brought in $16 million in revenue, but the production did grow throughout the year so without guidance I wouldn’t want to guess what their production or revenue will be for 2013.

One thing they did that was clearly quite brilliant was raise a lot of cash when the shares were at $3 — that’s why they have some financial wiggle room — but I think they’ll need some production or exploration success pretty soon to get any recovery in the share price over the coming months. On the flip side, the stock is so beaten down, getting down close now to the value of their proven and probably reserves, that any success could certainly drive the shares higher very quickly. I expect there are probably some Gumshoe readers who follow this one more closely than I, so feel free to chime in if you’ve got some more details or prognostications to share.

And the second “New Zealand Bakken” stock? Here are our clues:

“New Zealand Bakken Opportunity #2

“Not to be outdone is my second New Zealand Bakken opportunity…

“This company — trading at just over $4 — has been involved in the New Zealand energy market for over 11 years.

“Just like our first opportunity, this company has been fracking in the Taranaki region of the North Island. Their property there holds over 600 million barrels of oil and 7 trillion cubic feet of natural gas!

“They also own and operate 100% of all their facilities… including the pipelines….

“It’s paid off: They saw a 227% increase in production during 2012. And in 2012 revenue increased 228%, right along with production….

“they went on an aggressive land-buying spree… to the tune of 1.7 million acres! That’s an area bigger than the state of Delaware.

“They did what they needed to and grabbed as much land as they could. And it was all around the oil seeps in the East Coast Basin.

“They believe there is up to 14 billion barrels of oil there.

“At the $100 per barrel they can command for their premium product, their revenues are about to soar.

“They’re currently trading at just over $4 a share — but they won’t be for long…

“They’re about to drill four test wells in the East Coast Basin any day now.

“When news of their success gets out, I fully expect their shares will shoot up to $35, maybe higher… good for a whopping 775% winner!”

So though that sounds quite sexy, indeed, a gain of 775% is far less than the moonshot gains teased for New Zealand Energy — which makes sense, because here, according to the machinations of the Mighty, Mighty Thinkolator, we’re talking about a profitable, decent-sized (~$300 million) company called TAG Oil (TAO in Toronto, TAOIF on the pink sheets).

TAG Oil is over $4 a share, right around $4.85 at the moment (it’s down a bit today, it’s been over $5 for most of the month so far), the 14 billion number is in their data — that’s the “best case” number for their “undiscovered resources”, which are almost all in the unconventional shale plays to the East — though, like New Zealand Energy, they are actively producing oil and gas in the Taranaki region. Unlike New Zealand Energy, they are profitable and have no debt, so the exploration programs to potentially tap into that “New Zealand Bakken” seem to me, at just my first blushing glance, to be much more immediately feasible for TAG than for New Zealand Energy (even if the acreage or “undiscovered resource” is a bit smaller).

TAG Oil is in the process of drilling their first exploratory wells in the East Coast Basin (that’s the “Bakken-like” shale part), and it sounds as though the drilling has been challenging but there are no real results yet. They did have a farm-in partner, Apache (APA), on these blocks, but Apache backed out this year and paid them off with a lump sum — I don’t know whether that’s an assessment by Apache that the project isn’t going to work, or that it simply didn’t fit in with their investment priorities (the company, of course, says the latter). Regardless, they say they’re funded for the four-well drill program in the East.

They’re also continuing to expand production from their larger finds in the Taranaki basin, where they also own much of the infrastructure and pipelines and can get the oil, gas and condensates to market — so they seem to be clearly the more stable of the two. They also certainly have some big upside potential if those unconventional shale plays turn out to be worthwhile — if they get a technique or a system or the right kind of fracking or whatever is needed to release that oil. And yes, fracking is used in New Zealand and has been for many years, though it is politically fraught — New Zealand’s government seems to approve permits for oil and gas as much as they can, given their strategic focus on growing that industry (which is already substantial, including some large offshore finds) both for internal consumption and for export, but I don’t really know New Zealand at all and I assume that could change. There are other players in the New Zealand energy patch, including some of the global majors and a smattering of others ranging from the decent-sized New Zealand Oil & Gas (NZO in Australia or New Zealand, NZEOY on the pinks) to the teensy Marauder Resources (MES in Canada, MESNF on the pink sheets), and many more that are partially or significantly focused on New Zealand (there’s a good list at the local petro association here), but none match our clues as well as these two … and I don’t think anyone else has as big a bet placed on the East Coast unconventional stuff, at least not that I’ve seen.

So that’s what I can offer you for now — looks pretty clear to me that the Thinkolator’s on target in pegging TAG Oil and New Zealand Energy as the two plays being teased by DeHaemer, and he has picked some good early exploration stories before (and some bad ones, of course). Will these really create a business on the scale of the “next Bakken?” Well, we’re very early in the game for that call — but drill bits are spinning and I expect we’ll be hearing (and seeing both stocks move) on the results of their unconventional shale exploration this year. I’ve never bought a company in New Zealand or a foreign shale explorer (well, unless Quebec counts — and that dabbling didn’t work well for me) …
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