By Neil Ritchie
NEW ZEALAND onshore exploration and development activity continues at a rather subdued rate while the tale of contrasting listed juniors continues to impress, bemuse and bewilder.
Canada-listed junior TAG Oil is impressive, having recently reported a 30 per cent jump in fiscal third quarter production from a year earlier and an 8% rise from the previous quarter due to successful development drilling and optimisation at its core onshore Taranaki Cheal oil and gas field.
It recorded operating revenues of C$12.28 million for the quarter ending 31 December, 2014, but a net loss of C$944,000, together with average daily production that grew by 8% to 1,991 barrels of oil equivalent per day (with 77% being oil) compared to 1,845 bpd (78%) during the previous quarter.
Oil and gas production increased by 7% and 10% respectively, due to the successful completion of the Cheal-B9, B10 and E6 development drilling, and continued production optimisation at the Cheal E production site.
Record net oil production volumes were achieved, averaging 1,543 bpd for the latest quarter, equating to a 44% increase over the same period the previous year.
As at December 31, 2014, TAG had C$31.1 million in cash and cash equivalents and C$32.9 million in working capital.
TAG chairman Alex Guidi said growing TAG’s oil production from its Taranaki basin oilfield development area would continue to be a priority for the group, having trended consistently upwards for an extended period of years.
He said TAG’s shallow Miocene drilling focus had been substantially de-risked through extensive 3D seismic coverage and drilling over the past four years and would “help fuel TAG’s reserve-based growth in Taranaki.”
The company also expects growth to come from drilling success on attractive shallow and deep formation prospects along trend with existing oil and gas discoveries in Taranaki.
“Although we are reducing the level of high-risk capital expenditure, TAG controls a quality, long-term development-stage asset, producing premium-priced (Brent) light oil with substantial remaining development, appraisal and exploration upside in multiple proven producing formations.”
He added that when oil prices improved, markets became more favourable, or other opportunities arose, TAG was well positioned to increase its level of exploration activity.
Canadian broker and investment banker M Partners earlier named TAG as one of the top picks for 2015 and believes the oil and gas producer is well placed to ride out the current storm.
The group said flexible timing with respect to its high impact exploration program should allow the company to maintain a strong balance sheet and be “poised for significant upside as oil prices recover” and that its “sound financing footing and low-cost initiatives planned in the near term” should enable it to ride out “an extended period of volatile prices”.
TAG is still testing its shallow Cheal-E7 well, while a workover at the nearby shallow Cheal-E2 well has been completed and is currently also being tested. TAG is still completing technical work for a testing program on its deeper Cardiff-3 well further south, though that is not likely to happen until April at the earliest. The company is also installing an electric submersible pump into the Cheal-B5 well to hopefully enhance hydrocarbon recovery rates.
TAG has also won another five years to more fully explore its onshore-offshore Canterbury basin licence PEP 52589.
Bemusing is UK-listed junior Kea Petroleum’s review into the “strategic options” for the company, including a potential merger, acquisition or asset disposals.
The group says it is undertaking a “careful evaluation” of its business plan, operational assets and development strategy, and it is looking at the market valuation of its assets and capital structure.
Kea has already shut-in production at its onshore Taranaki Puka wellsite after it was unable to resolve mechanical issues it faced with the Puka-1 well. It decided to close the field until production economics improve.
It has also said it is in talks to secure additional funding to cover an expected funding shortfall for 2015 and has taken a number of (unspecified) cost-cutting measures to preserve its working capital.
Options include a corporate transaction such as a merger with, acquisition of, or subscription for the company’s securities by a third party, sale of the business, a farm-out or disposal of assets.
It’s a similar but bewildering story with Canadian listed junior New Zealand Energy Corporation, which has already made some significant operational changes but now needs to make further savings after a review of its current production and oil prices.
It is believed at least five positions – including those of drilling manager and land and Maori liaison manager – have already become either redundant or rationalised from the New Plymouth operations office and Waihapa production station. This should achieve cost savings of about NZ$70,000 per month.
In addition, it is undertaking a comprehensive review of all its third-party access contracts with the intent of ensuring full value is attained from its current asset base.
NZEC’s production from its Copper Moki, Tariki, Waihapa and Ngaere (TWN) fields continues to slip, averaging only 147 bpd during January, compared to 155 bpd for December. But it still believes that subject to sufficient working capital being available, a number of short-term upside opportunities exist to increase production from Copper Moki and enhance oil recovery from TWN.
The NZEC operations team has also been conducting a technical review of both discretionary and commitment expenditure across its permit positions. It believes “the large number of targets across multiple reservoirs” within the company’s permits “allows for significant flexibility in maximizing economic returns – both from the drilling of new wells and workover programs across existing production”.
In addition, it has been talking with a number of “counter-parties”, aiming to ensuring adequate working capital is available to deliver on the outcomes of its technical review.
Further, it is undertaking a comprehensive process that may include maximising value from both the fixed asset base and permit positions via farm-ins, joint ventures and asset divestments. This is in addition to the issuance of conventional equity and debt.
In particular, the company is engaged in “active dialogue with potential strategic partners whereby strong operational and technical synergies might be achieved over and above the provision of an improved capital position”.
However, industry commentators doubt NZEC will survive at all or if it does it will be unrecognisable from the company that listed on the Toronto venture exchange over three years ago.
“Their chances of survival continue to go downhill sharply; there are now no more costs to cut,” one told Oil & Gas Australia recently.
“The only way to further postpone the inevitable is to sell some more assets, enter into more joint ventures or farm out exploration acreage such as their stake in the Alton permit,” said a second.