A Closer Look at TAG Oil Ltd. (TSX: TAO) and (OTCQX: TAOIF)
TAG Oil Reports 300% Increase in Reserves, 227% Increase in Production Revenue & Strong Year End Financial Results
TAG Oil Ltd. (TSX: TAO) and (OTCQX: TAOIF), a Canadian-based production and exploration company with focused operations in New Zealand, reports the Company has filed its March 31, 2012 consolidated, audited financial statements, management discussion and analysis and annual information form with the Canadian Securities Administrators for the Company’s 2012 fiscal year-end. Copies of these documents can be obtained electronically at http://www.sedar.com, or for additional information please visit TAG Oil’s website at http://www.tagoil.com/.
Year-End March 31, 2012 Operating Highlights
- Proved and probable reserves increased to 6.624 million boe compared to 1.68 million boe at March 31, 2011 (82% oil and 18% gas);
- Production revenue increased to $43 million, up from $13 million for FY 2011;
- Net income of $18.92 million was recorded before deducting non-cash stock-based compensation expenses, compared to $1.29 million for FY 2011;
- Net operating cash inflow increased to $15.56 million for the year compared to an outflow of $1.15 million for FY 2011;
- Per barrel production, storage and transportation costs were $11.26 per boe for the year compared to $17.81 for FY 2011;
- TAG sold 338,569 barrels of oil during the year at an average price of $119.54 per barrel;
- TAG sold 151,309 boe of gas during the year at an average price of $4.02 per mcf;
- Farmout agreement signed with Apache Corp. on TAG’s East Coast Basin acreage (“East Coast Basin JV”);
- Drilled 11 successful wells in the 2012 fiscal year, bringing the total to 15 straight successful wells in Taranaki, with an active drilling program continuing;
- Graduated to Canada’s senior stock exchange.
At the date of this report, TAG is debt free with approximately $105 million in cash on the balance sheet. This cash is partially resulting from TAG closing a bought-deal financing on May 15, 2012 for gross proceeds of $46,345,750 in exchange for the issuance of 4,435,000 common shares at a price of $10.45 per share.
Production revenue for the year was $42.9 million compared to $13.1 million last year and the Company generated a net profit for the year of $18.92 million before deducting $6.5 million for non-cash stock-based compensation. TAG has drilled fifteen consecutive successful wells in Taranaki which has necessitated infrastructure upgrades that are now underway, and which will allow TAG to produce an additional 4000 BOE per day currently sitting behind pipe, and any additional production arising from further successful wells by March 31, 2013.
TAG currently has 59,758,257 common shares outstanding and 62,168,020 common shares outstanding on a fully diluted basis.
Taranaki Basin Operations
Independently assessed proved and probable reserves at March 31, 2012 grew 300% to 6.624 million boe (82% oil) compared to 1.68 million boe at March 31, 2011. This reserve assessment was confined to the shallow formations (< 2,000 meters) only, within just 24% of the total Cheal acreage and 2.5% of TAG’s Sidewinder acreage and do not include the higher impact, deep liquids-rich gas prospects TAG is planning to drill within the next year.
TAG is positioned to continue this strong growth cycle through exploration and development drilling on opportunities already identified, including more than thirty shallow, prospects in the Company’s Taranaki drilling portfolio.
Summary of TAG well status at March 31, 2012
|Site||Producing||Behind pipe awaiting infrastructure expansion|
|Cheal A||A3X, A7||A1, A8, A9, A10|
|Cheal B||BH-1, B3, B4ST, B5, B7||B1, B2, B6|
|Cheal C||C1||C2, C3*, C4*|
|Sidewinder||SW2, SW4||SW1, SW3|
*Drilled and awaiting production test
Cheal Oil and Gas Field – 100% Interest
Successful drilling throughout 2011/2012 within the Cheal field has resulted in a material increase to the Company’s forecasts. TAG expects continued growth through the following Cheal activity:
- Continued exploration and development drilling: Pre-emptive right on the Nova-1 drilling rig ensures access to services;
- Infrastructure enhancement project underway at Cheal ensures maximum value is achieved from behind-pipe production and new discoveries;
- Drilling the liquids-rich deep gas play’s such as Cardiff and Hellfire with an independent resource potential estimated by Sproule International to contain undiscovered gas and condensate in place for Cardiff alone of 214.5 Bcf and 12.8 million barrels, respectively.
- Completion of Cheal’s secondary recovery scheme in 2012, 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
During the 2012 fiscal year, TAG acquired 60 square kilometers of new 2D seismic data within the Sidewinder permit. This data will be used to plan a new multi-well drilling program within this lightly explored permit. With just 2.5% of Sidewinder’s acreage being drilled to date, significant exploration potential remains within the shallow play across the Permit area, as well as in deeper targets. Near-term operations are as follows:
- Sidewinder’s compression unit has been installed and is now operational at full capacity with only two of four wells maintaining this capacity. These high deliverability reserves are currently being conservatively produced at approximately 8-10mmcf/d with the single compressor to ensure many years of profitable operations from the Sidewinder Facility. The Production Station has been purposely built in modules that will allow further expansion should drill results warrant.
- On June 6, 2012, TAG received consent to drill four new wells within the Sidewinder permit, which was subsequently appealed by one opposing party. TAG expects the appeal process to be initiated shortly with resolution to be expected in approximately three to six months.
- TAG’s 2013/2014 drilling program will focus on a combination of shallow Sidewinder oil and gas targets as well as deeper gas/condensate targets such as the Hellfire prospect: TAG’s technical team has used 3D seismic to interpret the Hellfire prospect as a large prospect potentially exceeding the size of Cheal’s deep prospects such as Cardiff.
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 its 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.
In addition to East Coast Basin acreage noted above, TAG has recently acquired 100% interest in two additional permits, subject to consent being received by the New Zealand Ministry of Petroleum, that consist of an additional 842,000 onshore acres.
Canterbury Basin Operations
TAG has recently acquired, subject to the consent of the New Zealand Ministry of Petroleum, approximately 1.17 million acres of frontier exploration permits, situated both offshore and onshore. The Canterbury Basin is an under-explored frontier area with many geological similarities to the productive Taranaki Basin and historical drilling results indicating good potential for new discovery.
Historical drilling results indicate good exploration potential with two offshore gas/condensate discoveries drilled in the offshore portion of the Basin, with one well 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, Origin Energy and New Zealand Oil and Gas 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 the 2012 fiscal year amounted to approximately $44 million, primarily invested in the Company’s Taranaki operations. During fiscal 2013, TAG will continue to develop the shallow formations in Taranaki while also adding deeper higher-impact gas/condensate targets such as Cardiff and Hellfire, combined with high-impact exploration drilling in the East Coast and Canterbury Basins.
Capitalized oil and gas expenditures during fiscal 2012 were incurred as follows:
|Cheal Field||$23.0 million|
|Sidewinder Field||$19.8 million|
|East Coast JV||$1.5 million|
|Kaheru (offshore JV)||$0.2 million|
TAG Oil Ltd.
TAG Oil Ltd. (http://www.tagoil.com/) is a Canadian-based production and exploration company with operations focused exclusively in New Zealand. With 100% control 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 Corp 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.
“BOEs” or “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.
Heffernan Capital Management
Business Development Director – Private Client Group,
3 Raffles Place #07-01
Bharat Building Singapore 048617
Tel: +65 6329 6408
Fax: +65 6329 9699
Shayne Heffernan Ph.D.
Economist/Hedge Fund Manager
Shayne Heffernan oversees the management of funds for institutions and high net worth individuals. He is also an active consultant working with Corporations around the World.
He is recognized as one of the leading Economists in South East Asia, as well as the preeminent authority on ASEAN. His opinions and forecasts are widely read by decision makers in the region and Internationally.
Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reached a peak of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.
Chinese Society of Economists
American Economic Society
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