Oil firms and URI locked together

Press, 1 June 1988, Page 42

Oil firms and URI locked together

By

DAVID HAY

New Zealand Oil and Gas, Ltd, Oil Fields No Liability, and United Resources Investment Holdings, Ltd, are restructuring the way they hold investments in each other.

“It’s only logical,” the directors say in a letter to Oil Fields shareholders. This is the third time the assets concerned have been part of a major restructuring since 1983.

- The current moves include a take-over of Oil Fields by New Zealand Oil and Gas, while Oil Fields has brought the Pike River Coal Company from United Resources in return for some of its NZOG shares. United Resources ends up as the company in control of the group. Each of the three restructurings has reflected market conditions (the environment, or perhaps the “geology”) at the time. First, the companies took advantage of the right time to float a new company in their line of business; then came the bull market when investment companies and restructuring were the fashion; now more restructuring is in vogue, this time reducing the number of companies listed.

In 1983, oil exploration was the investment to look for. No fewer than five new companies were floated to take advantage of investors’ interest. Of the new companies, Oil Fields listed on the market at the lowest premium

over its issue price. New Zealand Oil and Gas and United Resources Investment Holdings sponsored the float and held a controlling shareholding. Most of the new company’s exploration licences were shared with New Zealand Oil and Gas.

The boom in oil exploration shares did not last. In 1984 and 1985, it became popular to turn the oil exploration companies into investment companies. Horizon Oil became Capital Markets, Kupe Oil became Kupe Investments, and Petro Taranaki became Areco Investments.

When the group including New Zealand Oil and Gas and Oil Fields No Liability did not restructure itself, as the others had done, a specialist investment and finance company, Euro-National Corporation tried to arrange it anyway; EuroNational made a takeover bid in 1986 for New Zealand Oil and Gas, and for United Resources Investment Holding. The directors opposed the take-over, and that was how the second restructuring came about. Oil Fields defended the group by acquiring shares and options in New Zealand Oil and Gas, and now holds 43 per cent of NZOG’s capital.

In 1988, the situation has changed again. The sharemarket is not active, and there is a trend of buy-outs and other moves that reduce the number of shares on the market. An-

other reason for the restructure could be that NZOG and Oil Fields seem to be closer than ever to having a share in a producing oil field (the Kupe South Field, off Taranaki, where oil has recently been discovered).

After the current changes, Oil Fields will no longer be a listed company, New Zealand Oil and Gas shares will be more tightly held, and the companies will partly control each other in a circular shareholding. United Resources will own 63 per cent of a company called Resource Equities, Ltd, which will be the largest shareholder in NZOG (holding 46 per cent of the shares). NZOG will wholly own Oil Fields. And Oil Fields, at the bottom of the structure, will own the other 37 per cent of Resource Equities. That is, the largest shareholder in NZOG, the parent company of Oil Fields itself. As well, New Zealand Oil and Gas will own 23 per cent of United Resources, the company at the top of the structure.

As a result, a proportion of the shares in each company will no longer be in circulation. Control of 27 per cent of United, and 5 per cent of NZOG could mean virtually complete control of all the companies and their potential oil field (if the structure does not change again). Apart from the New Zealand Oil and Gas Limited’s 23 per cent holding in United Re-

sources, the other large holdings (which make up about 40 per cent of the capital) are mainly held by nominee companies. It is hard to be clear who are the shareholders in the company that will control the circle of investments. (Although the last annual report at June 30, 1987, showed that most of the diretors had substantial shareholdings

at last balance date). Who benefits from the merger? Everyone, according to the restructuring profile, which says “shareholders in all of the companies will participate in a stronger listed company.” The only reasons the restructuring profile gives for the take-over, explained as a “logical step” are that it will “allow greater flexibility in funding” and lead to “administrative efficiencies.” But it is unlikely the merger will be opposed by the Oil Fields shareholders who have the choice of accepting or rejecting the offer. Shares owned by NZOG and United total about 59 per cent of the Oil Fields capital. The companies in the group seem to be specialists in restructuring themselves. They are in a situation of adjusting continually to each phase of the market. As they come closer to actually producing some oil, each restructuring move binds the shares in the three companies together in tighter circles. David Hay is a lecturer in professional accounting at Lincoln University College.