New Zealand Oil & Gas is intent on minimising its cash burn in the face of plunging oil prices and directors' fees have been slashed by around 30%.
Exploration activities appear to have been curtailed, and chairman Rodger Finlay said there was no intention to spend more on exploration, other than as required by contractual obligations in order to retain a permit.
An extension is being sought for NZOG's Clipper prospect, off the coast of Oamaru, which the company describes as "New Zealand's largest announced hydrocarbon prospect''.
Revenue for the six months rose by 21% from $54million to $65.4million, but earnings before interest, tax, depreciation and amortisation (ebitda) switched from a $7.3million profit a year ago to a $29.6million loss.
NZOG's operating cashflow rose $9million to a surplus of $31.7million.
However, last year's $7.7million half-year loss ballooned to a $45.2million loss, after the low oil price prompted downward asset re-evaluations, combined with accounting changes to booking exploration costs.
NZOG now books exploration costs as they are incurred, rather than carrying them over as a capitalised asset, and being written off when the project is found unfeasible.
Mr Finlay said "The board is intensifying its focus on minimising cash burn. Corporate costs will be reduced."
In an effort to lead by example, he said NZOG's outgoing chairman would not be replaced and directors' fees would be reduced - a cost reduction of around 30%.
"Exploration costs have been minimised, with no intention to spend further on exploration beyond our contractual obligations,'' Mr Finlay said in a statement yesterday.
During the half year NZOG upgraded reserves in the producing Kupe gas, lpg and light oil field by 34.7%, and noted it had disclosed "prospective resources'' of 530million barrels in the Barque prospect, also off Oamaru and near Clipper.
NZOG's Pateke-4H well in the Tui oil fields was continuing to produce ahead of operator estimates after coming into production last year.
Mr Finlay said despite the write-downs of asset valuations, the underlying business was performing well, and was cash-positive, with a strong balance sheet.
"I expect to see improved performance as costs are cut and growth through acquisition as assets come to market at value,'' he said.
NZOG chief executive Andrew Knight said operational performance had been consistent in the first half of the financial year, despite the lower oil price, and continued to produce enough cash to sustain it despite the low oil prices.
"During the year the average oil price achieved was $NZ60 per barrel.
"At contracted gas prices, the Kupe asset has positive cash flow, even if oil and lpg prices were nil. Kupe gas revenues alone are more than double the operating cost of the asset,'' Mr Knight said.
He said assuming current oil prices continued, the Tui field would then be abandoned.
Low oil prices have prompted the value of NZOG's 27.5% interest in the Tui oil fields to be written down by $8.7million.
"As a result of expected lower forward oil prices, the company now forecasts the [Tui] field's economic life will end in the first quarter of 2018,'' Mr Knight said.
