Announcement
TRANSACT: NZO: Independent Directors comment on Cue Ironbark release
09:41am
NZO
13/09/2019 09:41
TRANSACT
NOT PRICE SENSITIVE
REL: 0941 HRS New Zealand Oil & Gas Limited
TRANSACT: NZO: Independent Directors comment on Cue Ironbark release
Earlier this week, the independent directors of New Zealand Oil & Gas
released to NZX the scheme booklet for the proposed scheme of arrangement
with O.G. Oil & Gas (Singapore) Pte. Ltd.
On 11 September 2019, Cue Energy Resources Limited (Cue) released to ASX a
presentation made to the Good Oil Conference, which contained statements
relating to the Ironbark prospect.
Reference was made in the Cue presentation to the Ironbark prospect being a
"company changing opportunity", with a success case value with "potential to
be multiples of Cue current value". These statements were qualified by
cautionary statements relating to the risk of discovery and risk of
development associated with the prospect.
The independent directors consider that these statements are entirely
consistent with the scheme booklet. The Northington Partners independent
adviser's report included in the scheme booklet states (at page 34) that a
successful commercial discovery at Ironbark "could result in a highly
valuable economic outcome for NZO, Cue and the other field partners." The
Chair's letter also notes that Ironbark is a "very large" prospect (see page
9 of the scheme booklet).
As stated in the Northington Partners report, however, this potential upside
must be considered in light of the chances of commercial success at Ironbark.
Northington Partners noted (at page 34 of their report) that SRK Consulting
Australasia Pty Ltd assessed a 5% chance of commercial success.
Although the Ironbark prospect is large, pursuing it involves costs. In a dry
hole scenario at Ironbark, the company's cash balance would drop by $0.15 per
share, with there being no future value for Ironbark. This can be compared
to the certainty provided by the scheme, under which shareholders have the
opportunity to realise the value of New Zealand Oil & Gas assets (including
Ironbark) now.
The independent directors also take this opportunity to comment on Cue's
previous statements indicating that Ironbark has a "25% chance of success".
It should be noted that this figure refers to Cue's assessment of "geological
success" - i.e., the chance that hydrocarbons will be found in the geological
structure. It does not measure the chance of "commercial success" - i.e. that
any such discovery will then be capable of economic commercial exploitation.
SRK Consulting uses the same 25% geological chance of success in its
independent assessment that then determines a 5% chance of commercial
success.
This difference between geological and commercial success is crucial and
arises due to uncertainties related to the production of the hydrocarbons
(recoverability), development of infrastructure, construction of production
plant, and market for the product. The risks associated with these factors
mean that a 25% probability of geological success is consistent with a 5%
probability of commercial success.
For more information about Ironbark, shareholders are encouraged to read the
scheme booklet. The independent directors confirm that the discussion about
Ironbark in the scheme booklet is accurate.
A copy of the scheme booklet is available
here:https://www.nzog.com/assets/Uploads/20190909-NoM-Scheme-Booklet-IAR-rl2.
pdf and on the New Zealand Oil & Gas website www.nzog.com.
John Pagani
GM Corporate Services
+64 21 570 872
End CA:00340892 For:NZO Type:TRANSACT Time:2019-09-13 09:41:57
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