Though testing of the first of two potential zones in the well recovered water instead of gas, Drew Cadenhead, CEO of TAG Oil, believes that it's too early to call it quits. "Our two partners believe that the risk of continuing in the other potential zone is too great, but TAG doesn't agree," stated Mr. Cadenhead. "Though we recognize that there is a risk, we plan on leveraging a few operational techniques now common in North America, but previously untried here in New Zealand. In short, we believe that the potential reward justifies the continued risk, and we welcome the opportunity to further leverage our expertise."
Under the terms of the sole-risk agreement, TAG will be financially responsible for 100% of all future costs on the well. If and when the well starts producing, TAG will earn all of the revenue available until the Company recovers its entire sole risk investment, and will continue to earn 100% of the revenue until TAG has accumulated an additional five times (5x) their entire sole risk investment (commonly referred to as "The 500% penalty"). After that time, Austral Pacific and Tap Oil will have the option of buying back into the project, by paying their share of the initial sole risk costs to TAG.
Mr. Cadenhead concluded by stating that "TAG will sole-risk the operations on SuppleJack South-1a from this point on. We plan to perforate a different Lower Mt. Messenger sand at an along hole measured depth of 1958 meters, and flow test for hydrocarbons over the course of the next two weeks."
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