TAG Acquires Full Control of Cheal License
TAG Oil Ltd. announced Thursday that the Company has completed its acquisition of the remaining 69.5% interest in Petroleum Mining Permit 38156-S ("Cheal") and Petroleum Exploration Permit 38738-01 ("Greater Cheal") located in the Taranaki Basin, New Zealand. The Company now has 100% control over the 7,487-acre Cheal Production License, which encompasses the Cheal oil discovery, the Cheal Treatment and Production Facility, and an additional 7,988 net acres granted under exploration rights along trend.
Pursuant to a binding agreement between the Company and the Receivers for Austral Pacific Energy Ltd., TAG, through a wholly-owned subsidiary, has purchased these interests for consideration of US$2,000,000 in cash, a 25% net oil revenue royalty on the first 500,000 barrels produced after the effective date of June 1, 2009, then reducing to 7.5% for the life of the Cheal pool, and making certain permit work commitments, including optimization and drilling operations, within 30 months of completion.
TAG's initial program includes an optimization plan consisting of work-overs, hydraulic fracturing and down-hole heating within six producing Cheal oil wells. The wells are already tied into the 100%-owned Cheal Production Facility, which was completed in 2006 and was designed to handle up to 2000 barrels per day of throughput. This initial program is expected to result in a material increase to current oil production of approximately 325 barrels per day.
Garth Johnson, TAG CEO, commented, "The completion of this acquisition represents an important milestone in TAG's long history of exploration in New Zealand. With 100% control of Cheal, TAG can now initiate the long-awaited development of the Cheal pool and further exploration in this exciting new discovery area." Mr. Johnson then elaborated on TAG's plans, "With a strong working capital position and the anticipated increase in production revenue from our optimization program, TAG will initiate development drilling into the Cheal pool while exploiting our portfolio of high-impact, drill-ready 3-D defined prospects in the discovery fairway with Cheal and other Taranaki discoveries."
The Taranaki Basin is an emerging oil, gas and condensate province located on the North Island of New Zealand. The basin is underexplored compared to similar rift complex basins of its size and potential. Although the Taranaki Basin covers an area of about 100,000 sq km, only 125 wildcats have been drilled since 1955. To date proved oil reserves of 528 million barrels and proved gas reserves of 6.9 trillion cubic feet have been discovered within the Taranaki Basin. Last year the basin averaged 387 million cubic feet of net natural gas production per day, as well as 58,400 barrels of oil per day. This high-quality, low-sulfur oil sells at a premium to West Texas Intermediate due to its low sulfur content, and is sold primarily to Japan, Korea and Australia. (Source: New Zealand Ministry of Economic Development). The source of the information was independent; however, the Company was unable to confirm that this information was prepared by a qualified reserves evaluator or auditor in accordance with the COGE Handbook.
TAG also reports that its announced business combination with Trans-Orient Petroleum Ltd. is progressing on schedule and is expected to be complete by December 15, 2009. On October 26, 2009, Trans-Orient announced an update on its East Coast Basin exploration activity, including completion of the first section of the Boar Hill-1 wildcat well targeting the Waipawa Black Shale and Whangai Formation fractured oil-shale source-rocks at an anticipated depth of 1600m (5,250ft).
Trans-Orient also reported that planning is underway to drill three shallow test wells in order to gather stratigraphic core data in and around the historical Waitangi Hill shallow oil discovery. Drilling in the early part of the last century (1912) reported ongoing production of high-quality (50 API) crude oil from a depth of approximately 200m (650 ft). The Waitangi Hill area is both a conventional and unconventional target, located in the 530,000-acre Petroleum Exploration Permit 38348 in the East Coast Basin.
Two North American-based engineering firms have independently reviewed the conventional and unconventional potential of Trans-Orient's 2.2 million-acre exploration area. In reviewing these properties, Sproule International Ltd. and AJM Petroleum Consultants recognized the Waipawa Black Shale and Whangai Formations as viable shale source-rocks, rich in Total Organic Carbon, that have generated and continue generating oil and gas within these fractured shale formations.