Address to Special Meeting of shareholders

SPECIAL MEETING - CHAIRMAN'S ADDRESS Rodger Finlay Chairman Te Wharewaka Function Centre, Odlins Square, 109 Jervois Quay, Wellington 10am Wednesday, 12 April 2017. Ladies and gentlemen, I last addressed you on the 16th of December when you resoundingly approved the sale of our Kupe asset with an 87 per cent vote in favour. I stated then that the company intended to do two things: Return $100 million of capital, and Pursue value-enhancing acquisitions. The meeting this morning relates to the first of these, but we will touch upon the second as well. As stated in the Notice of Meeting, which I will take as read, the company is proposing to return $100 million of capital under a court-approved scheme of arrangement. The court has made initial orders requiring the capital return to be approved by shareholders at this meeting. For the scheme to proceed: the shareholders must approve it at this meeting; the company must obtain a binding ruling from Inland Revenue that the capital return is not in lieu of a dividend; and final approval of the scheme must be obtained from the court. Our advisers are working on obtaining the Inland Revenue ruling, and we expect to make an announcement on the outcome of our ruling application within the next week. If the Inland Revenue ruling is obtained, a final application will be made to court for approval of the scheme. If the court approves the scheme, we hope payments to ordinary shareholders can be made before the end of May. Holders of part paid shares will not participate in the return of capital under the scheme, for reasons explained in the Notice of Meeting. Ahead of your consideration of our business this morning I am happy to announce that 62.9 per cent of shares in the company have already been voted, and more than 98 per cent of votes cast so far are in favour of the resolution. Prior to this meeting the resolution also received approval by 87 per cent of the votes cast by holders of part paid shares, which satisfies a further condition for the return of capital to proceed. Before we vote I intend to invite discussion. I have also received a shareholder motion from Mr O Duffy of Dunedin: "That NZOG retain the $168 million plus enough from reserves to drill two wells off shore Oamaru for gas and or oil." I am advised that grounds exist that would enable me as chairman to reject this motion. And, as the motion relates to the management of the company, even if it was passed, it would not be binding on the Board. However, I intend to allow it to be discussed and put to a vote as a gesture of goodwill towards the shareholder proposing the motion, and to enable all views to be aired. In doing so, let me say that I believe passing that resolution would be irresponsible. Shareholders approved the Kupe sale on the basis that the company intended to return surplus capital, and we should follow through on that. I would now like to invite our chief executive, Andrew Jefferies to talk to you about the Clipper permit and our other activities. ... Andrew has given you a good overview of our plans to pursue value-enhancing acquisitions. I want to close by emphasising our ongoing drive to bring about cost efficiencies, and a cost base that is appropriate to a smaller-cap business. One area of focus is the duplication of costs with our Australian subsidiary, where we have been paying for two corporate head offices. We have seen a lot of cost removed from Cue and we will be working closely with the Cue Board to see progress on this strategy continue. I will now take discussion on the resolutions, including any objections shareholders have to the scheme. SPECIAL MEETING - CEO'S ADDRESS Andrew Jefferies CEO Good morning folks I am enthusiastic about our Canterbury permit, I would love to see it drilled and open up a new North Sea in the South. If a prospect like Barque were to be successfully drilled, then the value would be transformational for a company of our size - in fact for the entire Canterbury region. At the petroleum conference in Taranaki last month an international consultancy presenting on the world's top oil and gas targets put our Barque prospect number 9 globally. The number one on that list: the Ironbark prospect off West Australia that is held in our Cue Energy subsidiary, and which BP has just farmed into. We gave Barque a renewed push at a major trade show in London this year, at the New Zealand conference in New Plymouth, and we will show the flag at Singapore and Australian conferences in April and May. We have more than a handful of potential partners studying the data. So they are allocating resources and time to looking at our work and seeing if an entry to New Zealand is right for them. There are several reasons why we would want to bring in a partner. The first is the expertise of an experienced operator. The second is that it is a good check on own analysis. If we can persuade someone else to farm in to the well, it is a vote of confidence in the quality of our work. The third reason is that we want to manage our investment risks appropriately, and so we take larger slices of smaller prospects and smaller slices of large ones. We are looking at assets that are right for our size. We will look to get through a well without requiring substantial new investment, perhaps by recovering our back costs and selling down our current interest. The board has confirmed that if we bring a partner into the Barque prospect and commit to drill, we could be willing to put more of our own capital into well costs, but we will not be reckless about it. Our exposure will be sensible for our size. We will be leaner as a company following the capital return and our costs are considerably reduced. For example, next month we are moving into new premises, we have cut the size of our head office, Cue is much leaner and both companies have reigned in exploration spending to meet the new economics. Therefore our rate of cash burn will be a lot lower than it has been in past years. However, we have retained the capability to look at acquisitions, and our talented sub surface experts who added to the Kupe reserves are hard at work. We are seeing some quality assets coming to market but they have to meet our high investment thresholds. We need to be able to see a way we can make better returns from the asset than the seller can. As the chairman puts it, we want a dollar for seventy cents. This is the kind of under-valued potential our subsurface expertise can identify. We want a diversified mix. Before we sold Kupe, most of our revenue stream came through a single offshore platform, a single pipeline, a single umbilical, and sold into a single gas market. We want to spread that risk. We are looking at markets we understand - so, New Zealand is easier for us, and the further we go the bigger the prize needs to be. And we have a preference for gas because we see the price of gas assets has come down alongside oil assets - yet gas prices have not declined as much and look relatively more stable. Gas will underpin the worlds transition a lower carbon future, which is already boosting demand. There is upside potential in gas. We are looking to access certain larger assets as part of consortia, and we have identified potential partners. We are looking at how we can accelerate progress in our Indonesian portfolio. I spent some time in Houston last week talking to potential partners, with the new Minister of Energy and Resources, as part of a trade delegation promoting the benefits of New Zealand as an investment destination. Her strong support for a sensible approach to our industry is very welcome. The government has recently released a new offer of exploration blocks. We have specialist expertise in New Zealand's subsurface and this country's basins are under-explored. So we are going to scrutinise the offer and if we like what we see we will bid for new acreage. So that is a busy and exciting programme of work. We have made progress and I hope to make announcements before our annual meeting. Ladies and gentlemen: We can advance this work programme adequately with the funds we will have available after the return of $100 million of your capital. I can tell you with complete conviction that management would love to have a large pile of your cash to rest on. It makes our lives much easier... that is not why this company exists. Our job is to earn outstanding returns for you. It's your money, your investments. Your team are working hard to create those returns for you, and I want you to know we have exciting plans to do that with the capital we will have after May. Further Information: John Pagani External Relations Manager +64 21 570 872. End CA:00299756 For:NZO Type:ADDRESS Time:2017-04-12 09:16:11