Q2-2013 and Recent Operating Highlights:
• Production revenue increased 62% to $21.44 million for the six months ended September 30, 2012, compared to $13.23 million in the comparable period last year;
• Production revenue increased to $9.62 million during Q2-2013 compared to $7.38 million for Q2-2012;
• Net operating cash inflow increased to $5.81 million (six months: $14.98 million) for the quarter compared to $5.34 million (six months: $7.11) for Q2-2012;
• TAG sold 68,178 (six months: 170,058) barrels of oil during quarter at an average price of $109.97 per barrel (six months: $108.41 per barrel);
• TAG sold 80,592 boe (six months: 112,728 boe) of gas during the quarter at an average price of $4.38 per mcf (six months: $4.44 per mcf);
• Infrastructure build ontrack to allow production of 3000 boe p/d of behind pipe production to come online;
• Successfully drilled Cheal-A12, bringing the total to 19 straight successful wells in Taranaki;
• Currently drilling Cheal-B8 with 26 meters of net pay being identified on electric logs to date;
• Acquired three high-impact frontier exploration permits located in the East Coast and Canterbury Basins of New Zealand;
• All work carried out to the highest health and safety and environmental standards.
Liquidity and Financial Summary
At the date of this report, TAG is debt free with approximately $86 million in cash on the balance sheet. Production revenue for the quarter was $9.62 million (six months: $21.44 million) compared to $7.38 million (six months: $13.23 million) for the comparable quarter last year and the Company generated a net profit for the quarter of $1.20 million (six months: $6.76 million) before deducting $1,499, 954 (six months: $2,340, 675) for non-cash share-based compensation.
TAG currently has 59,773, 923 common shares outstanding and 63,481, 186 common shares outstanding on a fully diluted basis.
Taranaki Basin Operations
TAG finished Q2-2013 with excellent drilling results, and an ongoing Taranaki program underway with electric logs indicating economic oil-and-gas pay in recent drilling as follows:
• Cheal-C4 recorded a total of 17.5 meters of pay
• Cheal-A11 recorded a total of 30 meters of pay
• Cheal-A12 recorded a total of 23 meters of pay
• Cheal-B8 recorded a total of 26 meters of pay to date with drilling continuing at the reporting date
Summary of TAG well status
Site – Producing – Behind pipe
Cheal A – A10, A11 – A1, A3, A7, A8, A9, A12
Cheal B – BH-1, B3, B5 – B1, B2, B4ST, B6, B7, B8
Cheal C – None – C1, C2, C3, C4*
Sidewinder – SW1, SW2, SW3, SW4 – None
• Drilled and awaiting/undergoing production test
TAG has drilled 19 consecutive successful wells in Taranaki, which have necessitated the infrastructure upgrades now underway, and expected to be complete on schedule by March 31, 2013.
TAG's infrastructure project will allow the Company to become completely self-sufficient in producing, processing and marketing all oil and gas. Once completed, TAG can initiate production on all oil and gas wells that have been drilled but are not yet producing (behind pipe) and any additional production arising from further successful wells drilled.
Cheal Oil and Gas Field - 100% Interest
Successful drilling throughout 2011/2012 and now Q2-2013 within the Cheal field has resulted in a material increase to the Company's forecasts. TAG expects continued growth through the following activity:
1. Continued exploration and development drilling: pre-emptive right on the Nova-1 drilling rig ensures access to services;
2. Infrastructure enhancement project underway at Cheal ensures maximum value is achieved from behind-pipe production and new discoveries making TAG completely self-sufficient for oil and gas production, processing and marketing;
3. Cheal's new planned pipeline now has all landowner agreements signed and consent has been received with construction now underway;
4. Drilling the liquids-rich deep gas target such as Cardiff and Hellfire; Cardiff has an independent resource potential estimated by Sproule International of 214.5 Bcf and 12.8 million barrels of associated condensate and the Company anticipates drilling Cardiff in Q2 of fiscal 2014;
5. Completion of Cheal's secondary recovery scheme, which is forecast to cost-effectively increase recovery factors within the Cheal A pool's proved and probable oil reserves.
Sidewinder Oil and Gas Field - 100% Interest
On June 6, 2012, TAG received consent to drill four new wells within the Sidewinder permit, which was subsequently appealed by one opposing party. Progress has been made and TAG expects the appeal to be dismissed and drilling operations to resume as planned. A successful resolution is expected in Q3 of fiscal 2013.
TAG has planned a new multi-well drilling program using its proprietary 3D seismic, combined with new 2D seismic that was acquired during fiscal 2012. The Sidewinder Permit is lightly explored, where only 2.5% of TAG’s acreage has been drilled to date. Significant exploration potential remain in both shallow and deeper targets within the Permit area. Near-term operations are as follows:
1. Drill a minimum of four new exploration wells;
2. Drill Sidewinder's deeper liquids-rich gas targets such as the Hellfire prospect where TAG's technical team has used 3D seismic to interpret Hellfire as a large high-impact prospect with significant resource potential.
East Coast Basin Operations
The farmout agreement with Apache Corp in Q1 2012 was completed to explore and potentially develop oil and natural gas resources in the East Coast Basin of New Zealand. Apache Corp has agreed to spend up to $100 million to conduct a multi-phased exploration, appraisal and potential development program within TAG's East Coast Basin Petroleum Exploration Permits PEP 38348, PEP 38349 and PEP 50940 (the “Permits”).
TAG and Apache Corp have completed their 2D seismic program within the Permits and the TAG / Apache JV are continuing an extensive consultation process relating to the upcoming drilling of four vertical wells targeting the Whangai and Waipawa source rocks. During the quarter, construction and surface lease access consents were awarded. Upon receipt of the necessary drilling consents from district and regional councils being obtained in a timely manner, TAG and Apache anticipate well-site construction to begin in the first quarter of calendar 2013 followed shortly by drilling operations.
In addition to East Coast Basin permits noted above that form the TAG/Apache JV, TAG completed the acquisitions of a 100% interest in two additional permits during the quarter: PEP 53674 and PEP 52676.
Canterbury Basin Operations
During the quarter, TAG Oil also acquired a new frontier exploration permit (“PEP 52589”) in the Canterbury Basin, situated both offshore and onshore in New Zealand. At the date of this report, TAG has initiated the acquisition of 80 km's of new 2D seismic over certain leads identified within the permit. The Canterbury Basin is an under-explored frontier area with many geological similarities to the productive Taranaki Basin.
Historical drilling results in Canterbury indicate good exploration potential with two gas/condensate discoveries drilled in the offshore portion of the Basin, one of which tested in excess of 10 million cubic feet of gas and 2,300 barrels of oil per day. Although these discoveries were uneconomical due to the high cost of offshore development, more importantly, the gas/condensate accumulations found in these wells confirm that generation, migration and entrapment of hydrocarbons occur in the basin, indicating additional accumulations are likely to be present.
Offshore drilling scheduled by majors such as Anadarko and Origin Energy in 2013/2014 allow TAG to focus initially onshore while holding considerable upside related to its control over the onshore and near shore acreage directly updip of the scheduled deep water offshore wells.
Expenditures on the Company's oil and gas properties during Q2 of the 2013 fiscal year amounted to approximately $22.1 million, primarily invested in the Company's Taranaki operations for drilling, testing, workovers and infrastructure as follows:
Cheal Field – $18.6 million
Sidewinder Field – $1.5 million
East Coast, Taranaki Offshore, Canterbury – $2.0 million
The East Coast Joint Venture invested approximately $0.8 million during the quarter.
TAG Oil has filed its second quarter September 30, 2012, condensed consolidated unaudited interim financial statements and management discussion and analysis with the Canadian Securities Administrators. Copies of these documents can be obtained electronically at sedar.com, or for additional information please visit TAG Oil's website at tagoil.com/.
About TAG Oil Ltd
TAG Oil Ltd (tagoil.com) is a Canadian-based production and exploration company with operations focused exclusively in New Zealand. With 100% ownership over all its core assets, including oil and gas production infrastructure, TAG is enjoying substantial oil and gas production and reserve growth through development of several light oil and gas discoveries. TAG is also actively drilling high-impact exploration prospects identified across more than 2,953, 810 net acres of land in New Zealand.
In the East Coast Basin, TAG has entered into a farm-out agreement with Apache Corporation to explore and potentially develop the major unconventional resource potential believed to exist in the tight oil source-rock formations that are widespread over the Company's acreage. These oil-rich and naturally fractured formations have many similarities to North America's Bakken source-rock formation in the successful Williston Basin.
TAG Oil has adopted the standard of six thousand cubic feet of gas to equal one barrel of oil when converting natural gas to “BOE's”. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6Mcf: 1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Cautionary Note Regarding Forward-Looking Statements:
Statements contained in this news release that are not historical facts are forward-looking statements that involve various risks and uncertainty affecting the business of TAG Oil. Such statements can generally, but not always, be identified by words such as “expects”,“plans”,“anticipates”,“intends”,“estimates”,“forecasts”,“schedules”,“prepares”,“potential” and similar expressions, or that events or conditions “will”,“would”,“may”,“could” or “should” occur. These statements are based on certain factors and assumptions including;
A. all estimates and statements that describe the Company's objectives, goals, production rates, infrastructure capacity and or future plans relating to the seismic, testing, work over and drilling programs in Taranaki are forward-looking statements under applicable securities laws and necessarily involve risks and uncertainties including, without limitation: risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, volatility of commodity prices, imprecision of reserve estimates, environmental risks, competition from other producers, and changes in the regulatory and taxation environment. These forward-looking statements are based on certain factors and assumptions, including factors and assumptions regarding the management's views on the oil and gas potential in the Permits, well performance, the success of any operations, completing infrastructure and the costs necessary to complete the operations; and
B. those relating to TAG Oil's exploration and development of its oil and gas properties within the Cheal and Sidewinder project areas, the production and establishment of additional production of oil and gas in accordance with TAG Oil's expectations at Cheal and Sidewinder, well performance, drilling the completion of new infrastructure at Cheal and Sidewinder, the increase of cash flow from new production, expected growth, results of operations, performance, prospects, evaluations and opportunities. While TAG Oil considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Actual results may vary materially from the information provided in this release, and there is no representation by TAG Oil that the actual results realized in the future will be the same in whole or in part as those presented herein.
TAG Oil is involved in the exploration for and production of hydrocarbons, and its property holdings with the exception of the Cheal and Sidewinder project areas are in the grass roots or primary exploration stage. Exploration for hydrocarbons is a speculative venture necessarily involving substantial risk. There is no certainty that the expenditures incurred on TAG Oil's exploration properties will result in discoveries of commercial quantities of hydrocarbons. TAG Oil's future success in exploiting and increasing its current reserve base will depend on TAG Oil's ability to develop its current properties and on its ability to discover and acquire properties or prospects that are producing. There is no assurance that TAG Oil's future exploration and development efforts will result in the discovery or development of additional commercial accumulations of oil and natural gas.
Other factors that could cause actual results to differ from those contained in the forward-looking statements are also set forth in filings that TAG and its independent evaluator have made, including TAG's most recently filed reports in Canada under National Instrument 51-101, which can be found under TAG's SEDAR profile at sedar.com/.
TAG undertakes no obligation, except as otherwise required by law, to update these forward-looking statements in the event that management's beliefs, estimates or opinions, or other factors change.