Novus Hit Hard By Change Of Heart

Sydney Morning Herald

Thursday September 5, 2002

Jane Counsel

Novus Petroleum is under pressure from disgruntled shareholders to deliver results from its US gas exploration acreage after its share price touched an all-time low on concerns about the new strategic direction of the company.

Novus shares briefly touched $1.18 yesterday before closing at $1.34, down 5c, after the company announced a $43.5 million net loss for the six months to June 30.

The result, which compared to a $13.7 million profit for the previous corresponding half, was heavily impaired by $61.1 million in non-cash writedowns for capitalised exploration costs.

Prior to the write-offs, Novus posted an operating profit of $8.1 million versus $10.8 million a year ago.

Novus said the write-offs were a short-term consequence of repositioning since it decided late last year to shed its Egyptian assets and increase its exploration and production focus in the US.

The company has been positioning itself to take advantage of the lucrative returns from the US gas market.

However, a disappointing result from its Dunn-Murdock well at Padre Island has raised concerns about the likely success of that strategy.

The $4.5 million cost of drilling Dunn-Murdock has been included in the write-offs as well as the historical costs that were associated with Novus's stranded gas reserves in Pakistan and Sumatra and other unsuccessful exploration across its offshore portfolio.

``This isn't a result we're pleased to announce," Novus chief executive Bob Williams said.

``But it's largely a consequence of where we are in refocusing the company's strategy.

``Novus is now focused on natural gas, with an aggressive, yet low-risk, exploration program of near-term targets in the US and a longer-term, high-return Arabian Gulf portfolio."

Analysts and fund managers, however, said that they were confused by the ultra-conservative accounting approach Novus had taken by writing off the costs of exploration wells, despite the possibility that some might yet prove to be commercially viable.

``I can see why they're doing it and what they're doing, but I don't fully understand it," Sagitta's Tim Barker said.