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NZOG says acceptances in Cue takeover lift holding to 27%, close to target

13 Mar 15

New Zealand Oil and Gas said acceptances under its hostile takeover offer for ASX-listed Cue Energy Resources lift its interest in the target company to 27.3 percent, close to its target holding.

The Wellington-based oil and gas company acquired 19.99 percent of Melbourne-based Cue from Todd Energy just before Christmas and made a full takeover at the same price of 10 Australian cents last month. The offer documents say it is seeking only a 30 percent stake although the takeovers code requires an offer to buy all the shares if it moves above 20 percent. The offer closes on March 27.

Cue's board rejected the offer, saying it "substantially undervalues" the company, after an independent report from Grant Samuel valued the company at 11.5-to-15 Australian cents a share. The shares last traded on the ASX at 10.5 Australian cents.

John Kidd, an analyst at boutique Wellington firm Woodward Partners, this week criticised the Grant Samuel assessment, saying it "materially overstates" Cue's value, which he put at 5-to-9.5 Australian cents.

Lifting its stake to 30 percent of Cue would give NZOG greater exposure to the Maari and Manaia oil and gas fields at a time the company is looking at ways to increase overall reserves. In rejecting the offer, Cue said unproven exploration opportunities could be sacrificed in favour of immediate cash flow from producing assets in New Zealand in the Maari and Manaia fields.

"We feel happy with the level that we've achieved," John Pagani, a spokesman for NZOG told BusinessDesk. "But we are obligated to stay in the market until the offer period ends."

The bidder documents also show NZOG intends to keep Cue's ASX listing, depending on whether the company had enough liquidity and spread in shareholders to fulfil ASX listing rules. Cue's 2014 annual report doesn't include its largest shareholders, but according to its 2013 annual report, the top 20 shareholders controlled 56.6 percent of the company, including a 23.4 percent stake held by Todd.

Global oil prices have plunged in recent months, exacerbated by the Organisation of the Petroleum Exporting Countries resisting calls to reduce their supply as they try to protect their position from rival producers. Against that backdrop, and with no debt and $115.3 million in cash, NZOG is now focusing on acquisitions to diversify away from fluctuating oil values and bolster its income, while drawing back from exploration activity.

Last month, NZOG reported a loss of $10.5 million in the six months ended Dec. 31, from a profit of $4 million a year earlier, as it recognised a $13 million write down on its Tui oil field. Sales rose 5.2 percent to $54.1 million, largely driven by its ownership of a larger stake in Tui, purchased in the last year, and stability in gas prices despite oil price falls. Earnings before interest, tax, depreciation, amortisation and exploration expenses was $28.3 million, compared to $31.4 million in the previous comparable period.

Shares of NZOG were unchanged at 58 cents and have fallen 4.5 percent since the start of the year.

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