Jefferies navigates NZOG through the storm

Posted in Shareholders; Posted on 16 July 2020

Chief executive of New Zealand’s only listed oil and gas company not afraid to communicate business strategy... in haiku

Andrew Jefferies has led New Zealand Oil and Gas (NZOG) through an action-packed three-year period when the company has fended off a hostile takeover offer, adjusted to having a new owner, dealt with a sledgehammer government policy decision and launched a reinvigoration process for future growth.

Jefferies likes to tell anyone who does not know NZOG that it is the largest and smallest publicly listed upstream company in the country. It fulfils both roles by virtue of being the only oil and gas company on the local bourse. Next year will be its 40th year as a listed entity, during which time it has seen many of its peers disappear. NZOG would have disappeared too if Zeta Resources’ takeover offer in 2017 had been successful. 

Instead, a more palatable competing offer by OG Oil & Gas was accepted and Singapore-based OG became NZOG’s largest shareholder.

A scheme of arrangement to make NZOG a 100%-owned subsidiary of OG foundered last year when NZOG’s minority shareholders did not support it.

Amazing good looks

As to why shareholders resisted the scheme of arrangement, Jefferies smiles and says: “I’d like to think it was my amazing good looks and personality, but I suspect it was other things.”

Some minority shareholders have been part-owners for decades, and their faith in the company’s potential growth and returns far exceeded the price they were being offered, says Jefferies, who joined the company in 2013 and became chief executive in 2016. “So we’ve now been through two takeovers and a scheme of arrangement, I think I’m the most taken-over CEO in the country,” he says.

He describes OG, which remains a cornerstone shareholder, as “very supportive and incredibly financially savvy”.

NZOG’s current production comes from the reliable Kupe field, which NZOG discovered in 1984, and through its 50%-owned Australian subsidiary Cue Energy, which has the producing fields Maari, Oyong and Wortel.

At the end of March 2020, NZOG had a consolidated cash balance of NZ$115.5 million to help fund acquisitions, most likely in familiar New Zealand or Australia territory.

“Now is the time to deploy our capital,“ Jefferies says. “Deals are appearing. Companies are rearranging portfolios, others are looking for capital to develop, and some are struggling, so assets have to be turned over.”

Jefferies grew up in Australia, where he earned a degree in mechanical engineering at the University of Sydney and an MBA in technology management from Deakin University. He also holds an MSc in petroleum engineering from Heriot-Watt University in Scotland. He began his career in oil and gas with Shell in Australia, and had worked in Europe and Thailand before coming to New Zealand, with OMV, in 2007.  The country has become a more difficult proposition since the government’s decision in April 2018 to halt new offshore exploration permits. “When I came to New Zealand, I thought there was the potential for it to be a new North Sea. It had all the prerequisites for success.

We just needed investment on the acreage, but the government’s announcement drove away that capital,” he says. “New Zealand will miss the opportunity to develop its unexplored basins, to generate highpaid employment, and raise the standard of living, and there is a risk we won’t have back-up power if the renewables fail.” Following the announcement, major players like Shell, Chevron and Equinor exited, while farm-in interest faded in NZOG’s own Barque gas prospect off the South Island. “I used to say that New Zealand E&P was a cottage industry, but now it’s more of a shed party,” he says with a smile.

Jefferies is  married with one son, 19, who is studying at the New Zealand School of Music, and a Chief executive of New Zealand’s only listed oil and gas company not afraid to communicate business strategy... in haiku RUSSELL SEARANCKE Wellington As to why shareholders resisted the scheme of arrangement, Jefferies smiles and says: “I’d like to think it was my amazing good looks and personality, but I suspect it was other things. daughter, 17, in her final year of school.

He enjoys  hunting trips with his son and yoga classes with his daughter.

Barefoot waterskiing

He also enjoyed barefoot waterskiing when he was younger but his German wife prefers that he stick to more sedate activities like walking and swimming.

Despite the ban on new permits, OMV has drilled a number of offshore exploration wells resulting in the Toutouwai discovery, and NZOG still has an appetite for exploration, even though in the current market “you’re better off buying production rather than exploring for production”.

Late this year, NZOG will participate in drilling the Ironbark gas prospect off Western Australia, with BP as operator and partners Beach Energy and Cue. Jefferies explained to shareholders at the recent AGM the rationale for drilling Ironbark and concluded with a haiku: The Ironbark lurks patiently Its beauty buried deep Come next summer we shall know. NZOG still holds hopes for its Barque permit in the Canterbury basin and is comforted that the government approved its work programme extension. Jefferies says NZOG would support a lifting of the ban if there is a change of government in this September’s national election. “The important thing is it would not be a retrograde step, which is how the environmental lobby would paint it. New Zealand is a gas and condensate province, and our light hydrocarbons can play a role in the transition to a lower carbon future, both here and in this region.” “What we have in our portfolio at the moment, including Cue, is the gas transition writ large.

It’s real. Our gas in New Zealand and in Indonesia is displacing coal, or feeding dedicated power plants. We’re mindful of the reality that there will be a cost of CO2, and we support that.” The ban does, to an extent, shape Jefferies’ ambitions for NZOG in the coming years.

“I’d love to see us become a bigger company, keeping our focus and agility, our values, in a few geographies, because the ban highlighted that sovereign risk can appear anywhere. And I would love more gas — especially in New Zealand where pricing is strong.“ NZOG’s next three years could be as action-packed as the previous three.

- by Upstream news company