New Zealand Energy Corp. (TSX-V: NZ): Initiating Coverage

New Zealand Energy (NZE) is a ~US$10 mm market cap TSX listed company with ~1.6 mmboe of 2P reserves in mature fields onshore New Zealand. The story is about very material free cashflow. NZE is dividend oriented first and growth second. In late 2023, the newly elected New Zealand government commenced reversing historic anti-hydrocarbon regulations in response to an unexpected decline in domestic gas production and a spike in natural gas prices to >US$12/mcf. This coincided with NZE being re-capitalized and coming under new management with a primary focus on developing the Tariki Gas field where ~1 mmboe of net 2P gas reserves remained up-structure from the production well which ceased >15 years ago. The plan is to restore production for >12 months, then converting the reservoir into a gas storage in mid-2026. By then, the free cashflow generation is expected to allow NZE to distribute to shareholders an amount at least equivalent to the current market cap. Our C$5.00/sh target price reflects our ReNAV and implies >5x the current share price.

Revisiting Tariki gas. Boosting production at oil fields
NZE’s key asset is its 50% WI in the Tariki gas field where new well Tariki-5 is due to be drilled this September, and is expected to initially add >1 mboe/d net production growing to 2 mboe/d ~6 months later. The well will also evaluate an exploration opportunity (~1.5 mmbbl net) in the shallower Tikorangi limestone where oil has been produced in an offset Tariki well. The Tariki field will be produced through the company’s pipeline and facilities. A gas storage option contract is currently being negotiated with a domestic gas utility. NZE will also work-over existing wells at Copper Moki, (work already in progress), and at Waihapa to restore continuous oil and gas production. NZE also plans to drill a well in an unswept crestal fault block in the Tikorangi reservoir at Waihapa. These activities could add another 1 mboe/d net production over the next 6-8 months.

Economics, free cash flow and value build-up
Long term gas realizations are expected to be ~US$7/mcf. Oil realizations are ~US$14/bbl discount to Brent along with a 10% government royalty, material tax losses and opex of ~US$8/boe at plateau production. We estimate ~US$35/boe after tax operating cash flow. The capex programme is funded by the recent C$5 mm equity raise. We forecast NZE will have ~US$17 mm (~C$1.30/sh) in net cash at YE25 increasing to ~US$25 mm (~C$1.90/sh) by June 2026. This represents respectively >1.7x and ~2.5x the current market cap. The shallower Tikorangi oil at Tariki has an unrisked NAV of ~C$2.35/sh. Pending the finalization of the storage contract, the residual value of Tariki will be at least the net value of the remaining recoverable gas that we estimate at ~US$15 mm (~C$1.15/sh). NZE could be worth >C$7.45/sh by YE26 including >C$3.00/sh in net cash. NZE anticipates the domestic utility would fund the gas storage capex and pay NZE a net fee of 50%xUS$9-12 mm/y. This represents 50% of NZE’s current market cap each year.