Kahili Output Halt has Little Effect on NGC Gas Entitlements

NGC Holdings Limited said the unexpected halt to production from the Kahili-1 well, while disappointing, does not have a significant effect on the Company's overall gas supply portfolio.

In response to recent news media reports, NGC said gas deliveries from the current single producing well on the field were expected to amount to 4-5 petajoules (PJ) over its life. NGC currently has long-term entitlements to approximately 300PJ from other fields, including Maui, Kapuni and Pohokura.

Although the Kahili-1 well initially performed to expectations, a subsequent pressure decline affected production levels to the point where viable production in its present configuration could not be maintained. The under-performance of the well has previously been reported to the market by the field operator, Austral Pacific Energy Limited, on behalf of the Kahili Joint Venture.

NGC notes a statement by Austral Pacific on 10 December 2004 that the well would be shut in for an extended period for a long-term pressure build-up while future action to return the field to production is considered. This includes a review by the Joint Venture of drilling a Kahili-2 well.

NGC has not discounted the prospect that production from the field will resume in the future.

As previously reported, NGC has invested $9 million to construct and operate processing plant and related pipelines associated with the Kahili field. With the well now shut in, this plant is currently not operating. Notwithstanding the prospects for the Kahili field to resume production in future, the plant is suitably sited in central Taranaki and has the potential to serve other Kahili wells or new fields that may be discovered from other drilling opportunities in the area.

Much of the plant is skid-mounted and can be readily relocated to another site if necessary.

Also as previously reported, in 2003 NGC made a prepayment of $2 million for gas to be supplied by Austral Pacific, and at a price to be agreed. While NGC has rights to all gas from Kahili, the prepayment is not exclusive to that field and, in essence, it gives NGC first rights to negotiate for any gas produced by Austral Pacific in the Taranaki region.

NGC has also prepayment arrangements with International Resource Management Corporation (IRM) is respect of IRM's share of gas from the Kahili and Cheal fields.

NGC's involvement in Kahili, and in the prepayment arrangements for gas from Kahili and other fields, are part of the Company's gas gathering strategy.