Tag Oil Earmarks $66M Capex for Taranaki Growth

TAG Oil Ltd. is initiating a $66 million capital expenditure program within the 100%-controlled Cheal and Sidewinder fields in the Taranaki Basin, New Zealand. This program consists of continued high-impact exploration and development drilling targeting the shallow (~2000m) oil prone zones, deeper drilling (~4000m) targeting large liquids-rich gas prospects and various workover operations to existing wells. In addition, TAG will also expand the Company's 100%-owned production infrastructure in order to bring additional production on-stream arising from new discoveries and production that currently sits behind pipe. This capital expenditure program will be funded from existing working capital and revenues from current oil and gas production.

Ongoing Cheal and Sidewinder Field Drilling and Secondary Recovery Plans

TAG's shallow drilling and workover program will focus on building proved and probable reserves, increasing net present value of reserves, increasing recovery factors and increasing daily production. The drilling plan continues to build upon TAG's highly successful exploration, appraisal and development program at both the Cheal and Sidewinder oil and gas fields. In addition, TAG's program also includes workovers to a number of existing wells to perforate previously bypassed oil pay intersected within the Urenui Formation and to initiate Cheal's first waterflood recovery program.

Deep Drilling Targets Significant Liquids-Rich Gas Prospects

Using TAG's proprietary 3D-seismic data, the Company has identified two deep liquids-rich gas plays with undiscovered resource potential of approximately 500 billion cubic feet of gas and approximately 20 million barrels of associated condensates:

  • TAG intends to drill one well targeting the Hellfire prospect in the latter part of 2012. The Hellfire prospect is approximately 10 square kilometers in size, and is located within TAG's Sidewinder field permit. Identified clearly on TAG's seismic, Hellfire is a considerable structural high in the Kapuni Formation, where numerous large fields have been discovered in the area. Hellfire lies on a broad regional trend that runs directly beneath TAG's new Sidewinder Production Facility.
  • TAG's Cardiff prospect is another large prospect of similar size to Hellfire, also in the Kapuni Formation, which is offsetting New Zealand's landmark Kapuni gas and condensate field discovery operated by Shell Todd Oil Services. TAG intends to re-enter the Cardiff-2A well, where gas and condensates were previously flow tested from a vertical well for an extended period. The new horizontal whipstock section will utilize the top hole section of the historical Cardiff wellbore, and will provide hundreds of meters of potential pay zone penetration versus the approximately 66 feet (20 meters) of vertical gas and condensate pay in the original well.

TAG's Infrastructure Plans

TAG's recent drilling of 14 successful wells in a row, combined with an ongoing Taranaki drilling program, has necessitated the immediate expansion of infrastructure at Cheal as follows:

  • Tripling oil lifting capacity;
  • Tripling gas compression capacity;
  • Building a gas plant at Cheal capable of stripping LPG and liquid hydrocarbons from Cheal gas;
  • Building the Cheal-C site oil battery to establish permanent production from recent Cheal-C discoveries, as well as allow for future development;
  • Adding new pipelines to tie the Cheal-C site to the Cheal-A site and add a new 19,685 feet (6,000 meter) pipeline from Cheal to New Zealand's open access gas transmission line to maximize marketability of TAG's gas production;
  • Establishing TAG as a third-party gas processor in Taranaki.

TAG Oil CEO, Garth Johnson commented, "TAG's substantial growth over the past year has prompted this new capital expenditure program, which is the largest in the history of our company. As one of New Zealand's most prominent oil companies, I'm very excited to enter this next phase of growth and increasing our contributions to the local economy. Our excellent drilling success has surpassed our infrastructure capabilities and the investment into expanding our infrastructure will allow us to bring all of our current production on stream, as well as provide commercialization of all future discoveries without delay."


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