one step closer to ppp takeover

NZ Oil & Gas one step closer to PPP takeover
by Mitchell Hall | Friday January 16 2009 - 07:51am
The Australian Foreign Investment Board has given its blessing to NZ Oil & Gas (NZO) increasing its Pan Pacific Petroleum (PPP) stake to 19.99% - or launching a full takeover.

NZO upped its stake in PPP to 14.9% just before Christmas, a strategic stake that is just below the threshold where permission is required from the Australian regulator for a substantial foreign interest.

That permission has now been granted, green lighting NZO for takeover moves.

"In due course, NZOG will assess its position to determine what, if any, further steps might be taken," the company said.

Forsyth Barr analyst Andrew Harvey-Green says it’s too early to say it’s a definite, but there’s a strong possibility, if not probability that NZO will attempt a takeover of PPP at some point in the near future.

“NZO now has three basic options: to sit with what they’ve got, go up to 20%, or go for a takeover. When going for a takeover you have a choice of going for 50% or going for the whole lot…

“I think they will probably struggle to get the whole lot given the current directors of Pan Pac own about 20% between them – or at least it’s well above the 10% mark where you can force people to sell. So they could potentially get 50% but again, if the directors don’t sell you’re going to have to effectively get 70% of the shares that are still out there,” Mr Harvey-Green says.

While NZO has a reasonable amount of cash reserves, it’s likely any attempted takeover will involve a scrip bid, where NZO might pay up to 20% in cash to PPP shareholders and make up the difference with an offer of NZO shares.

“Most of the long term forecasts I’ve seen from NZIER and various other overseas bodies suggest that oil demand will continue to rise for a good 10-20 years yet”, says Mr Harvey-Green.

Given that the Tui oil field will still be cash-flow positive even if the price of oil were to sink to $20 per barrel, a potential 22.5% stake in Tui – if NZO acquired all of PPP – is an attractive proposition.

Pan Pacific shares have nearly doubled in price since NZO first began acquiring its “strategic stake” in December, from 23c to 40c at the market's close yesterday.