New Zealand Energy Corp. (TSX-V: NZ): Equity raise to progress Tariki gas storage

• New Zealand Energy (NZE) has raised C$3 mm of new equity priced at C$0.18 per share. The proceeds of the raise will fund the desktop studies required to prepare the field development plan, derisking the gas storage project ahead of expected monetization within the next 12 months. It will also fund the repayment of the convertible note.
• On completion, the company will be debt free and have a market cap of ~C$8 mm at current share price.
• In 2017, the adjacent Ahuroa gas storage facility, with an estimated gas storage capacity of ~10-11 bcf (excluding ~4 bcf of cushion volumes), was sold for NZ$190 mm (~US$115 mm or ~US$1-1.1 mm/bcf).
• The Tariki gas storage is estimated to have a storage capacity of ~20 bcf (excluding cushion gas). Even excluding the value of Tariki’s cushion gas, the price paid for Ahuroa storage capacity suggests a value of ~NZ$345 mm for Tariki (~NZ$175 mm/US$105 mm net to NZE’s 50% WI). This equates to over C$3.45/sh.
• While Tariki’s expected injection and withdrawal capacities (60 mmcf/d and 45–55 mmcf/d, respectively) are similar to Ahuroa’s, its full development cost may be much lower— ~NZ$100 mm vs. Ahuroa’s NZ$190 mm. Even setting aside Tariki’s cost advantage, applying the NZ$190 mm price paid for Ahuroa implies a value of ~NZ$95 mm (US$55 mm) NZE’s 50% share in Tariki, equivalent to >C$1.90/sh.
• Assuming just NZ$8/mcf price volatility between summer and winter and ~3 months of withdrawal, would imply NZ$44 mm gross revenue per year (NZ$22/US$13 mm net to NZE). Deducting NZ$8 mm opex per year leads to gross cashflow of NZ$36 mm per year (US$11 mm per year net to NZE).
• As we incorporate the issue of new equity, we have changed our target price to C$1.70 per share in line with our new ReNAV.

Progress at Copper Moki
Monumental Energy has reported that the CM-1 and CM-2 wells are now producing at rates of 100 bbl/d and 75 bbl/d oil respectively. Rates are continuing to increase as the wells clean up. Flush production could be over 300 bbl/d.

Valuation
The remaining steps to take FID on the Tariki gas project are: (1) an update of the reservoir simulation model, (2) a detailed costing of the storage infrastructure, and (3) agreeing terms with a utility firm. We currently apply a 50% discount to the unrisked value of Tariki gas storage based on the Ahuroa sale in 2017 (assuming 20 bcf storage capacity at Tariki and 11 bcf at Ahuroa). We note that this is in line with a valuation based on the respective injection/withdrawal capacities (but no discount). Our new ReNAV is C$1.69 per share.