TAG Oil has filed its June 30, 2011 unaudited financial statements and Management Discussion and Analysis with the Canadian Securities Administrators for the first quarter of the March 31, 2012 fiscal year.
June 30, 2011 Corporate and Financial Highlights (Q1 Fiscal 2012):
Taranaki Basin Operations
TAG Oil has commenced a ten-well development drilling program following six straight successful wells achieved at TAG's Sidewinder and Cheal oil and gas fields, which established more than 5000 barrels of oil equivalent per day of production capability from the initial drilling program. This drilling campaign, now underway at Cheal, will continue to target the main producing Mt. Messenger (~1800m) and the shallower Urenui (~1400m) Formations. Once drilling is completed at Cheal, the drilling rig will be moved to the Sidewinder field to target the primary Sidewinder gas zone and the lower zone oil discovery also in the Mt. Messenger Formation.
Cheal Oil and Gas Field - 100% Interest
The Cheal field continues to perform strongly with low decline rates and is presently producing approximately 850 to 900 barrels of oil equivalent per day, with approximately 300 to 400 barrels of oil per day ("bopd") of production remaining behind pipe, awaiting enhancements to Cheal's hot-water artificial lifting system. This upgrade is expected to be fully operational in the next 90 days.
In addition, testing of the Cheal-C1 well has confirmed an oil discovery in the Cheal "C" block area. This exploration success significantly extends the known Mt. Messenger and Urenui field boundary. Cheal-C1 intercepted oil-and-gas-bearing sands that produced substantial volumes of light oil during swab testing. A secondary Mt. Messenger zone also flowed gas at rates between 1.5 million to 3 million cubic feet per day.
The Cheal-C1 well also encountered strong oil shows within a 73-meter-thick section of sandstone within the deeper Moki Formation. The Moki zone was tested but commercial flow rates were not achieved. TAG's technical interpretation indicates that Cheal-C1 penetrated a "transitional zone" where oil migrated through the contacted zone into a large structural closure, updip from the Cheal-C1 penetration. Given the extensive oil shows recorded while drilling, coupled with the excellent reservoir quality interpreted from electric logs, TAG will plan a new well that directly targets the Moki Formation prospect, drilled from a more optimal location on the structure.
In addition to the new round of drilling activity at Cheal, TAG is also conducting a number of optimization operations on certain historical Cheal wells. Included in these optimization operations is the deployment of Cheal's first water flood to the "A" pool, a program forecast to cost-effectively increase recovery factors within the Cheal A site's oil reserves.
Sidewinder Oil and Gas Field - 100% Interest
After the successful drilling and testing of the Sidewinder-1 through 4 wells and the construction of the Sidewinder Production Facility and pipeline, TAG is now planning a multi-well drilling program within this lightly explored permit, following the Cheal drilling program currently underway.
East Coast Basin Operations
TAG recently entered into a farmout agreement with Apache Corporation to explore and potentially develop oil and natural gas resources in the East Coast Basin of New Zealand.
Apache has agreed 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"). Apache will be the Operator for all activities undertaken pursuant to the Agreement, excluding the initial four vertical wells of the work program that TAG will operate with Apache's assistance. Apache will spend up to $100 million upon completion of Phase 3 to earn a 50% interest in the Permits. At the end of Phase 3 operations TAG will remain as operator of the Permits. If Apache commits to Phase 4 operations, all costs will then be shared equally between Apache and TAG going forward.
Liquidity and Financial Summary
TAG ended the first quarter of fiscal 2012 in a very strong financial position: the Company remains debt free with net working capital as at June 30, 2011 of $60.51 million.
Production revenue was $5.85 million and the Company generated a net profit for the three-month period of $2,178,499 before deducting $1.91 million for stock-based compensation. TAG produced 56,509 and sold 50,952 barrels of light oil at an average price of C$113 per barrel. Per barrel production cost was further reduced to $15 per barrel compared to a production cost per barrel of $20 for fiscal 2011.
Expenditures on the Company's oil and gas properties during the quarter totaled $10.36 million primarily invested in the Company's Taranaki operations. TAG's near-term focus is to develop the shallow formations at Cheal and Sidewinder with a view to build near-term reserves and production revenue.
At June 30, 2011 the Company had 50,001,062 common shares outstanding and 57,166,060 common shares outstanding on a fully diluted basis.
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