From the ground up - building a new exploration company

L&M Petroleum has an aggressive exploration programme underway in Southland and it’s getting plenty of support from local investors.   BY NEIL RITCHIE

L&M Petroleum entered the New Zealand energy scene earlier this year, promising to become a top Kiwi petroleum exploration and production company.

It was the first new company to list on the New Zealand Stock Exchange for 2007 – and one of the first on the Australian Stock Exchange – after its successful Initial Public Offering (IPO) raised A$20 million for an aggressive exploration programme of up to 11 wells during the next two years in onshore Southland.

Although Australian investors took the larger slice of the L&M IPO pie, it was New Zealanders, particularly those in the South Island, who gave L&M Petroleum management a pleasant surprise.

Australians took about 70 percent of the IPO by value, with New Zealanders taking about 25 percent, while others – from places as diverse as the United States, Britain, Canada and Hong Kong – took about A$1 million of L&M stock.

However, just over 50 percent of the shareholders by number were New Zealanders, with “a large proportion of those coming from the South Island”, company managing director John Bay told Energy NZ.

“It was very gratifying that we got great support from Kiwi investors, particularly from the South Island. Mainlanders seemed to like the prospect of a local company exploring for South Island oil and gas.”

Although newly listed, L&M Petroleum is something of a reincarnation.

Its former parent company, the larger Christchurch-based L&M Group that was founded as L&M Mining in the mid-1930s, has been active in mineral, coal, gold and petroleum exploration and mining in New Zealand and internationally.

It held a 54 percent interest in L&M Oil (NZ) that listed in 1969 but was unsuccessful in its offshore and onshore Taranaki exploration. It delisted after the government refused to renew its exploration licences after the oil shocks of the 1970s.

More than 30 years later, Bay and his newly-formed team are intent on “building L&M Petroleum into one of New Zealand’s top exploration and production companies”.

Bay, an industry veteran with about 30 years’ experience in the United States and New Zealand petroleum industries, has already essentially built his “upstream” team – employing fellow former Fletcher Challenge Energy executives Steve O’Connor and Bruce McGregor as exploration manager and chief financial officer respectively.

He also employed former Swift Energy New Zealand geophysicist Rod van Koughnet as senior geoscientist.

“We still need to employ a fulltime personal assistant but these appointments, together with the seven or so specialist consultants we already engage, means L&M can now move forward with confidence with its planned exploration programme over the next two years.”

Bay says he first met L&M management while they were doing a deal with his most recent former employer, the government-owned integrated energy player Mighty River Power (MRP).

“L&M and MRP were looking at coal seam methane opportunities in the Waikato. Eventually, MRP also decided to participate in exploring some of L&M’s new Southland petroleum acreage.

“Then L&M approached me with the opportunity to come onboard as the CEO of their newly created petroleum company.

“They offered me the opportunity to use my experience to build an exploration company from the ground up. It seemed like an exciting challenge so I accepted,” Bay says.

“While we hope to drill up to 11 wells in the onshore Western Southland Basin over the next two years, we will also be on the lookout for other potential opportunities in the South Island, as well as other parts of New Zealand, possibly even overseas.

“L&M also has an offshore licence in the South Island’s Solander Basin. We hope another explorer or explorers will join us in this permit, with the aim of drilling our first well within the next year or so.”

Bay says it is “certainly laudable that the New Zealand government is trying to address the issues of carbon neutrality and global warming”, referring to the government’s draft Energy Strategy.

“However, it is also important the government recognises that New Zealand is only one small player in a very big issue.

“It is important the government does not overlook the need for New Zealand to ensure it continues to have a secure, reliable energy supply. We have a substantial amount of existing thermal plant that will continue to require fuel, primarily natural gas, for the next 30 or even 50 years,” he cautions. 

He says it is also important the government recognises that renewables alone will not be sufficient to meet New Zealand’s expected energy growth, nor replace existing thermal electricity generation plant that would have to shut down if there was insufficient gas or coal available. 

“The real risk is that the government’s move away from thermal will further discourage international explorers from coming to New Zealand.

“If that happens, the government will, in effect, be guaranteeing New Zealand is caught in either a liquefied natural gas, coal or even a nuclear future.

“There is no doubt that natural gas is the cleanest thermal option and that indigenous gas is the most cost effective.

“So I think the government’s energy strategy should recognise the important role that gas plays, and will continue to play, in New Zealand’s energy future.”

And in early April L&M Petroleum relocated from Christchurch, where L&M Group is still located, and set up its own office in Wellington.

“Since L&M Petroleum is now no longer a part of the overall L&M Group, I thought it important to that we physically separate from the group’s head office.

“We considered remaining in Christchurch, as all of our current assets are in the South Island, but ultimately decided to shift to Wellington.

“In the small New Zealand petroleum industry you essentially have to be located in one of two places – New Plymouth as the industry’s operations centre or Wellington, the business centre.

“So we have elected to shift to Wellington. Most of the other oil companies, the Petroleum Exploration and Production Association of New Zealand (PEPANZ) and the various government entities that we interact with on a regular basis are all there.”