N.Z. Oil & Gas Buys 40% Stake in South Island Permit

By Gavin Evans

Oct. 28 (Bloomberg) -- New Zealand Oil & Gas Ltd., the nation's biggest publicly traded explorer, will buy a stake in a project off the country's South Island as it seeks to replace declining production from its Tui oil field.

New Zealand Oil & Gas is acquiring a 40 percent interest in an exploration permit in the Canterbury Basin about 40 kilometers (25 miles) off the coast from Oamaru. The Australian Worldwide Exploration Ltd.-led venture plans a seismic study next year over a prospect with the potential to hold 600 billion feet of gas and 58 million barrels of oil, the Wellington-based explorer said.

N.Z. Oil & Gas owns 12.5 percent of Tui off the Taranaki coast of the country's North Island. Daily production from the field, operated by Sydney-based AWE, has fallen about 32 percent this year, leaving its most junior partner with more than NZ$280 million ($152 million) in cash to invest.

The new permit contains the ``promising'' Barque structure and ``secures participation in the assessment of what we believe is one of the more promising oil and gas prospects available in New Zealand,'' N.Z. Oil & Gas said today.

The explorer said it is buying its share from Perth-based Tap Oil Ltd., without disclosing the terms. It will fund its share of next year's seismic survey, which accounts for the bulk of the venture's total budget of less than NZ$2 million, spokesman Chris Roberts said in an interview.

Earlier Failure

Tap and AWE were granted a 10-year license to explore the region in 2003. In 2006 they and partners Beach Petroleum Ltd. and Anzon Energy Ltd. abandoned a well that had been targeting as much as 80 million barrels of oil in the Cutter prospect.

At that time, Barque's potential had been put at 5 trillion feet of gas and 500 million barrels of oil. A decision on whether to drill must be made by August 2010 and there is no certainty that will occur, N.Z. Oil & Gas said today.

Earlier, the company reported an 11 percent decline in sales in the first-quarter as oil prices eased and Tui's output slowed.

Revenue fell to NZ$72.3 million in the three months ended Sept. 30, from NZ$80.9 million in the three months through June.

Production from Tui fell to 3.15 million barrels from 3.77 million. Daily output has since declined to about 32,000 barrels a day from about 47,000 barrels in January, the company said.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net