With Puka shut-in, Kea Petroleum hoists for sale sign

By Amy McLellan

There were high hopes for Kea Petroleum when it was founded by the ex-Rift Oil management team. They had made money in Papua New Guinea, selling up to Talisman Energy in 2009 in a £114.8m cash deal that was a 30 per cent premium on the stock price, and hoped to replicate that success in the more benign operating environment of New Zealand.

But, soon after its 2010 IPO, the AIM start-up felt the pinch of under-capitalisation, particularly when its first wells in the onshore Taranaki Basin came back dry. Two thousand and 2012 looked promising with the discovery of the Puka oilfield but it hasn’t been an easy project to develop and production has serially under-performed while further exploration has come back empty-handed.

Now, with low oil prices taking their toll and the Puka site shut-in since mid-January, the company has put itself up for sale. It’s not the first time the company has had to think hard about survival. There was a strategic review in 2013, which ended in a farm-out at Puka to ASX-listed MEO Australia, reducing Kea’s stake to 70 per cent and carrying it through 80 per cent of the costs of last summer’s disappointing Puka-3 appraisal well.

That well, which showed the oil /water contact was 30 metres higher than expected and significantly reduced the likely potential reserves, was described as a “bitter and unexpected blow” by chairman Ian Gowrie-Smith.

Last month the company said it was continuing discussions with potential farm-in partners for the Mercury, Mauku and Shannon prospects, the latter being a limestone target beneath the challenging Mt Messenger sands at Puka that is described by Kea as one “we can’t afford not to drill”.

Unfortunately, the reality is the company can’t afford to drill anything: the micro-cap has been seeking additional funding to cover an expected funding shortfall in 2015 – and these discussions continue. Cost cutting is also underway to preserve working capital, which “remains tight”.

For the year ended May 31, 2014, the company generated just over £2 million in revenues in oil sales from the Puka-1 and Puka-2 wells and posted a net loss of £4.86 million.

With the share price under pressure last year, particularly given the its dilutive financial funding arrangements with Darwin, there was a share capital reorganisation at the end of last year after the shares were trading at a price below their nominal value of 1p per share. The shares were are currently trading at 1.35 pence.