TAG Oil Snaps Up Remaining Interest in Cheal Field

TAG Oil Ltd.

TAG Oil has executed a binding agreement to acquire the remaining 69.5% interest in PMP 38156-S ("Cheal") and PEP 38738-01 ("Greater Cheal") in the Taranaki Basin, New Zealand. TAG's offer to purchase these assets has been accepted by the Receivers appointed to Austral Pacific Energy Ltd. Upon completion of this transaction TAG will own 100% interest in the Cheal Oil and Gas field including the recently completed Cheal Production Station.

At March 31, 2009 an independent reserves evaluation completed for TAG by Sproule International Limited, has assigned 530,000 remaining proved plus probable BOE's to the Cheal pool, calculated using a conversion ratio of 6MCF: 1bbl, with an associated NPV-10 amounting to US $9.4 million.

The consideration to be paid by TAG for these assets includes:

  • US $2,000,000 in cash;
  • an initial 25% overriding royalty on net oil sale revenue per barrel on PMP 38156-S and PEP 38738-01 for the first 500,000 barrels of shallow oil produced (reduced to 7.5% for the life of the field after 500,000 barrels of oil have been produced);
  • certain permit work commitments that include optimization and drilling operations to be completed in the next 30 months;
  • at completion TAG will grant a first ranking security interest over all oil produced and the proceeds of all oil produced from PMP 38156-S and PEP 38738-01 to secure royalty payments and performance of certain permit work commitments.

The binding offer also contains certain price adjustments that relate to net operating profits earned and capital expenditures paid at Cheal between the May 31, 2009 effective date and the completion date of the transaction.

The agreement is subject to certain conditions precedent being satisfied, including TSX Venture Exchange approval and other such standard conditions for a transaction of this nature.