High Peak Royalties (ASX:HPR), formerly Torrens Energy, has entered into a joint acquisition of producing New Zealand oil and gas properties with an aim to establish a long-term royalty interest.
The deal will involve High Peak and Mosman Oil & Gas (AIM:MSMN) jointly purchasing Origin Energy’s (ASX:ORG) onshore NZ oil and gas assets, allowing Origin to focus on its Queensland export LNG project.
The South Taranaki Energy Project (STEP) will be 30% owned by High Peak and 70% owned by Mosman. Current production is about 150-300 barrels per day of oil, 2.6 million cubic feet of gas and some LPG, equating to about 603 barrels of oil equivalent per day.
This output generates around NZ$8 million (A$7.3 million) in revenue per annum.
The asset comprising STEP have historically produced about 25 picojoules of gas and 1.94 million barrels of oil.
High Peak’s payment obligation in the $10 million deal will total $2.1 million paid upon completion in December and $900,000 six months after completion, plus joint venture costs.
The acquisition is consistent with the company’s strategy of building a royalty portfolio without the obligation of funding capital expenditure because it will separate STEP from its royalty portfolio before possibly recycling the investment and retaining the royalty interest.
Analysis
The STEP investment is a positive for High Peak as it offers a pathway to a long-term royalty and draws on the company’s strengths (energy assets, legal and structuring experience) during an opportunity to leverage its balance sheet.
There is scope to expand production and revenues at STEP, with Mosman already having identified a number of potential optimisation initiatives.
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