New Zealand Energy Corp. (NZ:TSX.V; NZERF:OTCQX), Genesis Energy L.P. (GEL:NYSE) and L&M Energy Ltd. signed a memorandum of understanding (MOU) to advance the Tariki gas storage project in New Zealand, reported Auctus Advisors Analyst Stephane Foucaud in a Nov. 26 research note. New Zealand Energy Corp. (NZEC) is focused on the development of oil, gas and gas storage opportunities in New Zealand.
795% Upside Potential
Auctus Advisors has a CA$1.70 per share (CA$1.70/share) target price on NZEC, reflecting a net value of about US$50M for the Tariki gas storage project, noted Foucaud. At the time of his report, NZEC was trading at about CA$0.19/share.
From that price, the return to target is 795%.
About the MOU
The MOU lays out the framework for the three entities' collaboration, in terms of technical studies, commercial negotiations and project development milestones, up to a final gas storage services agreement, Foucaud wrote.
"This agreement will underpin the path toward a final investment decision, project completion and commercial operations," he added.
Potential Numbers for NZEC
Assuming an average price of NZ$10 per thousand cubic feet, given seasonal volatility, and assuming 60,000,000 cubic feet per day of withdrawal capacity over roughly 100 days, the Tariki project could generate NZ$60M in annual gross revenue, noted Foucaud. This translates to NZ$30M (US$18M) net to New Zealand Energy.
Even after NZ$20M in annual operating costs, gross pretax free cash flow would be about NZ$40M. This would net New Zealand Energy NZ$20M (US$12M).
Applying a 10% required return for infrastructure assets implies a market value of about NZ$200M (US$120M) net to New Zealand Energy, once onstream.
With capex of an estimated NZ$120M gross or NZ$60M net, the project would deliver a precapex value of about NZ$140M (US$85M) net to New Zealand Energy, about CA$2.85/share.
Valuation of Tariki Project
Auctus Advisors assigns the Tariki gas storage project a risked exploration net asset value (NAV) of CA$1.75/share and an unrisked NAV of CA$3.48/share, reported Foucaud. The wealth advisory firm bases this valuation on Contact Energy Ltd.'s (CEN:NZE) sale of the Ahuroa gas storage facility in 2017 to Gas Services New Zealand for NZ$200M and the assumption that Tariki can store 20,000,000,000 cubic feet (20 Bcf) of gas and Ahuroa, 11 Bcf.
"We note that this is well below the valuation based on Tariki's expected injection/withdrawal capacity," the analyst added.
The Next Steps
Foucaud outlined what work will be tackled next to advance the Tariki project. Subsurface and engineering work will be done to define gas storage capacity, cushion gas requirements, operating pressures, as well as injection and withdrawal rates. Completion is expected by year-end.
Then the surface facilities will be designed and sized. The Tariki-5A well will be returned to production in Q1/26 to evaluate its performance.
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