TAG Oil provides third quarter results

Monday, February 18, 2013      
  • TAG Oil's production revenue increased 23% to $32.29 million for the nine months ended December 31, 2012, compared to $26.21 million in the comparable period last year.
  • TAG remains debt free with approximately $72 million in cash at the date of this report.
  • TAG sold 47,104 BOE of gas during the quarter (nine months: 159,775 BOE) at an average price of $4.79 per mcf (nine months: $4.55 per mcf).

Q3-2013 and Recent Operating Highlights

  • TAG Oil's production revenue increased 23% to $32.29 million for the nine months ended December 31, 2012, compared to $26.21 million in the comparable period last year;
  • During Q3-2013 TAG produced an average of 1,727 BOE per day with a production revenue increase by 13% to $10.85 million compared to $9.62 million in Q2-2013;
  • The Company generated a net profit for the quarter of $2.64 million (nine months: $9.40 million) before deducting $2,004,076 (nine months: $4,344,751) non-cash share-based compensation;
  • TAG remains debt free with approximately $72 million in cash at the date of this report;
  • TAG sold 86,687 barrels of oil during the last quarter (nine months: 256,745) at an average price of $109.97 per barrel (nine months: $108.80 per barrel);
  • TAG sold 47,104 BOE of gas during the quarter (nine months: 159,775 BOE) at an average price of $4.79 per mcf (nine months: $4.55 per mcf);
  • Production infrastructure expansion is on track for completion by March 31, 2013 as planned, to allow unrestricted production from 25 wells and any future wells;
  • Commenced a 13-well Taranaki Basin drilling campaign, starting with the Sidewinder-5, Sidewinder-A6, Sidewinder-A7 wells;
  • Secured rig to drill the Cardiff prospect, a large liquids'-rich gas target in the Kapuni Formation with independent mid range resource potential estimated by Sproule International of 214.5 Bcf and 12.8 million barrels of associated condensate;
  • TAG Oil was awarded four attractive onshore Taranaki exploration blocks all within proximity of our Cheal and Sidewinder infrastructure;
  • TAG retains a 100% interest in its East Coast Basin permits and receives cash payment through an early termination of the farm-out agreement with Apache Corporation.

Liquidity and Financial Summary

At the date of this report, TAG is debt free with approximately $72 million in cash on the balance sheet. Production revenue for the quarter was $10.85 million (nine months: $32.29 million) compared to $12.98 million (nine months: $26.21 million) for the comparable quarter last year, and the Company generated a net profit for the quarter of $2.64 million (nine months: $9.4 million) before deducting $2,004,076 (nine months: $4,344,751) non-cash share-based compensation.


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More information and prices

TAG currently has 59,637,623 common shares outstanding and 63,267,386 common shares outstanding on a fully diluted basis.

Taranaki Basin Operations

TAG finished Q3-2013 with Sidewinder-5 encountering approximately 6 meters of net pay to start off calendar 2013's Taranaki drilling program. SW-5 has been completed for production and will be tied in to the Sidewinder production facility in early March, after Sidewinder-6 and 7 have been drilled.

Summary of TAG well status

Site Producing * Behind pipe
Cheal A A3, A7, A9, A10, A11, A12 A1, A4, A8
Cheal B B3, B4ST, B6, B8 B1, B2, BH1, B5, B7
Cheal C C1, C2, C3, C4**
Sidewinder SW-A2, SW-A3, SW-A4 SW-A1, SW-A5**

*Cheal-A7 and A12 and Cheal-A9, A10, A11 and A12 are all producing into small diameter temporary production lines that inhibit optimal
production. Back pressure testing on the individual wells indicate these wells will produce more optimally using their own production pipelines
upon completion of the Cheal infrastructure upgrades.
** Re-completed and/or awaiting production test

TAG's infrastructure project is scheduled to be completed on March 31, 2013 allowing the Company to become completely self-sufficient in producing, processing and marketing all oil and gas it produces. TAG can then initiate production on all oil and gas wells that have been drilled but are not yet producing, along with any additional production arising from future successful wells drilled.

Cheal Oil and Gas Field - 100% Interest

TAG expects continued growth through the following activities:

  1. Continued exploration and development drilling: pre-emptive right on the Nova-1 drilling rig ensures access to services;
  2. Infrastructure enhancement project and new gas pipeline at Cheal ensures maximum value is achieved from all discoveries, making TAG completely self-sufficient for oil and gas production, processing and marketing;
  3. Drilling the Cardiff liquids-rich deep gas target: 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 mid-C2013; and
  4. A detailed geotechnical evaluation of all untested zones in the Cheal area: Many TAG wells drilled in the last two years encountered multiple pay horizons. Good production practice dictates depleting one zone at a time in these multi-zone wells, and the study will determine if an accelerated infill drilling program is economically justified to maximize value of these to-date untested zones.

Sidewinder Oil and Gas Field - 100% Interest

During the quarter, the Company was granted consent by the New Plymouth District Council allowing TAG to drill up to four new wells within the Sidewinder Oil and Gas Field. TAG immediately completed site construction, and to the date of this report, has drilled the Sidewinder-A5 well and spudded Sidewinder-A6.

TAG intends to also drill Sidewinder-A7 and Sidewinder-A8 using its proprietary 3D seismic, combined with new 2D seismic that was acquired during fiscal 2012. The Sidewinder Permit is lightly explored and significant exploration potential remains in both shallow and deeper targets located within the Permit area. Planned operations are as follows:

  1. Drill 4 new exploration wells, inclusive of Sidewinder-5 that has already been drilled during the quarter; and
  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.

Taranaki Blocks Offer Permits - Shallow Drilling

TAG Oil, along with its joint venture partner East West Petroleum, will utilize the extensive 2D and 3D seismic coverage to drill a minimum of nine wells in C2013 on the three joint ventured permits as follows:

Permit Number Permit Name/Interest # of Wells Target
PEP 54877 East Cheal (TAG 70%) 5 Miocene 2500m
PEP 54879 South Cheal (TAG 50%) 3 Miocene 2500m
PEP 54876 North Cheal (TAG 50%) 1 Miocene 2500m

Taranaki Blocks Offer Permits - Deep Drilling

Heatseeker is a 3D defined, drill ready deep gas and condensate prospect that has similar geological features to the adjacent landmark Kapuni gas/condensate field. Heatseeker is anticipated to be drilled late in calendar 2013.

Permit Number Permit Name/Interest # of Wells Target
PEP 54873 Heatseeker (TAG 100%) 1 Eocene > 4000m

East Coast Basin Operations

On January 31, 2013, TAG Oil and Apache Corp. concluded an agreement for early termination of the Farmout Agreement related to PEP's 38348, 38349 and 50940. The main highlights of the agreement are:

  1. Apache paid TAG a lump sum payment to satisfy its obligations related to funding Phase 1 operations under the Farmout Agreement;
  2. TAG will retain all assets developed under the agreement, including all seismic and technical work completed by the Joint Venture; and
  3. TAG retains a 100% interest in the above mentioned East Coast Basin permits.

The Company continues to focus on consultation and engagement while progressing its operational planning for upcoming drilling activities.

The Company anticipates beginning drilling the first two wells of the Phase I drilling program in April 2013. These wells will test several high-impact play objectives including the Waipawa and Whangai source rocks, utilizing conventional vertical drilling techniques similar to those used by TAG over many years in its successful Taranaki Basin operations.

In addition, TAG is currently preparing to drill one shallow stratigraphic well on PEP 50940 as part of its work program commitments in the East Coast Basin. The stratigraphic slim-hole well is similar in design and operations to a farmers water well. The 450 meter planned depth will facilitate the gathering of geological rock data before being plugged and abandoned.

Canterbury Basin Operations

During the quarter, TAG acquired and processed an 80 kilometre 2D seismic survey within the Company's new frontier exploration permit ("PEP 52589") situated both offshore and onshore the Canterbury Basin, South Island, New Zealand. Interpretation of the seismic data is underway to identify potential well locations. 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.

Capital Expenditure

Expenditures on the Company's oil and gas properties during Q3 of the 2013 fiscal year amounted to approximately $21 million, primarily invested in the Company's Taranaki operations for drilling, testing, workovers and infrastructure as follows:

Cheal Field $19.54 million
Sidewinder Field $0.29 million
East Coast, Taranaki Offshore, Canterbury $1.17 million

TAG Oil has filed its third quarter December 31, 2012, condensed consolidated unaudited interim financial statements and management discussion and analysis with the Canadian Securities Administrators.


Article Tags

TAG Oil New Zealand Australasia Finance Deepwater Farm Out Seismic

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. More

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