Jadestone buys into New Zealand's offshore Maari Project

Asia-Pacific focussed oil and gas company Jadestone Energy has executed a sale-and-purchase agreement with OMV New Zealand - a subsidiary of OMV - to acquire an operated 69% interest in the Maari Project, shallow water offshore New Zealand, for a total headline cash consideration of $50m (£38.58m), to be funded from its cash resources.

The AIM-traded firm described the Maari Project as a mid-life producing asset located in permit PMP 38160, in the offshore Taranaki basin, in 100 metre-deep water, about 80 kilometres southwest of New Zealand's North Island.

It said the project included the Maari and Manaia oil fields, produced via a self-elevated jack-up wellhead platform, an FPSO, owned by the joint venture partners Horizon Oil at 26% and Cue Taranaki at 5%, and the associated decommissioning liability with respect to all facilities, which was shared by the partners in accordance with their respective working interests.

The fields hold 2P reserves of 13.9 million barrels of oil, with current production standing at between 4,000 and 4,500 barrels per day, both on a net 69% basis.

Jadestone said the project had been producing since 2009, achieving peak production of 16,400 barrels per day in 2010.

With original oil in place of close to 300 million barrels in the producing reservoirs and cumulative production of 38.3 million barrels, the fields had achieved only a “modest” recovery factor of 13% to date.

The fields, based on their current 2P reserves, were scheduled to produce until 2031, however the Jadestone management team said it believed there was “substantial” potential for reserves upside not yet captured in the 2P reserves.

It said the acquisition had total headline cash consideration of $50m, based on an economic effective date of 1 January 2019, and was structured as a purchase of an interest in the assets.

Upon completion, the purchase price would be adjusted to reflect after-tax free cash flow from the economic effective date, and other customary adjustments.

The Maari Project generated after-tax free cash flow for the calendar year to 31 December 2018 of $40.1m, on a net 69% basis.

Additional contingent consideration of $2.6m would be payable in the event that dated Brent averages above $75 per barrel in 2020, and a further $1.3m if dated Brent averages above $75 per barrel in 2021.

The board said it believed the transaction represented “exceptional value” to Jadestone shareholders, noting that it increased the company's net production by around 30%, and 2P reserves by 33%.

It said the unlevered internal rate of return was approximately 100%, based on the base case 2P profile, with an approximate adjusted unlevered internal rate of return close to 50% when burdened upfront with all future estimated 2P asset decommissioning costs.

Expected payback was said to be in less than 12 months from anticipated transaction closing.

The acquisition would be Immediately accretive on an operating cash flow per share and free cash flow per share basis.

“I'm delighted to establish a new operating presence in New Zealand and to begin building relationships with local regulators, communities, staff and other stakeholders,” said president and chief executive officer Paul Blakeley.

“Adding the Maari Project to our growing portfolio of high-value assets in the Asia Pacific region demonstrates our ability to bolt on new assets and provides more than a decade of additional free cash flow, even in the 2P reserves only scenario, as supported by our external reserves audit.

“The Maari project adds both significant additional opportunity as well as diversity to our operations.”

Blakeley said New Zealand was a “natural strategic fit” for Jadestone, where the company saw many shared values with regards to sustainable energy investment, through maximising recovery of existing resources and world-class expectations for health, safety and environmental stewardship.

“We are excited by the opportunity to deploy our expertise to managing this mid-life producing asset, particularly as we see significant reserves upside.

“The Maari Project has achieved very modest recovery factors to date, relative to the substantial estimated original oil in place, making this an ideal platform to showcase our differentiated technical capabilities.

“With ongoing reinvestment into the fields, we foresee many opportunities to add value without relying on further exploration or appraisal success.”

At the same time, the firm’s focus was on extending the life of existing infrastructure that may otherwise not realise its full potential, thus continuing to generate income, growth, and ongoing employment for local communities and the New Zealand economy, Blakeley added.

“The acquisition is immediately accretive to shareholder value and will be funded entirely with cash on hand.

“I look forward to establishing an office in New Plymouth, and to further engaging with regulators and local communities as we build our Jadestone team and establish operating credentials in New Zealand.”

At 0817 GMT, shares in Jadestone were up 9.09% at 69p.