TAG Oil Tests Production at Cheal HZ Well

TAG Oil reported that ongoing production testing of the 100%-controlled Cheal-BH-1 horizontal well in the Taranaki Basin of New Zealand continues with positive results. To date, a conservative range of low draw-down configurations has been tested, with associated production rates ranging from 400 to 500 barrels of oil equivalent (BOE) per day (predominantly oil) with no water.

In coming months, TAG will further test the full production capabilities of the Cheal-BH-1 well, with the goal of optimizing daily flow rates while maximizing long term reserve recovery. The continued positive results being demonstrated at Cheal further support TAG's upcoming Cheal “step-out” drilling campaign commencing this February, 2011, targeting Mt. Messenger and Urenui Formation prospects which are defined on 3-D seismic, situated within the oil discovery fairway of the lightly explored Cheal acreage.

TAG Oil's Chief Executive Officer, Garth Johnson commented, "With hundreds of meters of high quality oil and gas pay across the horizontal section in the Cheal-BH-1 well, and the strong flowing pressures we've measured during testing, we can anticipate rapid capital recovery and long term profitability from this well. With further potential to increase the flow rate, this promising result — from the first-ever horizontal well drilled into the Mt. Messenger Formation — will allow us to capture more reserves, providing a positive impact in our approach to the future development of Cheal."

The current production output capabilities at the Cheal field from the wells that are permanently or temporarily tied into the Cheal Production Facility, now exceed 1,000 BOE per day.

Sidewinder Oil and Gas Discovery

TAG Oil also announced that significant progress is being made towards fast-tracking the commercialization of the Sidewinder-1 oil and gas discovery. Development of the new Sidewinder Production Station, including a 3-km pipeline link into New Zealand's main gas transmission grid, is being designed to accommodate oil and gas production from all future Sidewinder wells.

"The high deliverability test results from the Sidewinder-1 well combined with strong gas prices in New Zealand, provide compelling economics, with drilling and development costs potentially recoverable in under six months." Mr. Johnson commented. "With this new facility in place, we can commercialize additional Sidewinder wells quickly and cost effectively."

TAG's present timeline forecasts facility commissioning, with estimated initial production rates from the Sidewinder-1 well of 8 to10 million cubic feet of gas per day (1300 to 1600 barrels of oil equivalent per day), by mid-2011. "Together with Sidewinder and production from Cheal, TAG's daily production will increase substantially by the end of fiscal Q2, 2011," Mr. Johnson noted. "Also, successes arising from our current and planned 2011 Taranaki Basin drilling campaign would drive additional production and reserve growth in 2011."