Here’s an excerpt from TAG Oil’s Q2 conference call, conducted by Chief Executive Officer Garth Johnson and New Zealand Country Manager Randy Toone on November 14th. You can listen to the full podcast and see the Q2 financials here, or here's a highlight for those of you who don’t want to listen to the whole recording.
The transcript is from Thompson Reuters.
In which normally unflappable CEO Garth Johnson, allows himself to get a little bit excited…
“I don't believe that there is a peer company out there that could compare to TAG’s potential. We are creating value right now. We are fully funded to achieve our goals with over $70 million in the bank. We have no debt. We have strong cash flow from daily production. Cash flow is expected to keep growing over many years with the program we have under way. In early results we announced today at our Cheal-E site, the testing program continues to build our confidence.
Taking an optimistic view of what's in front of us at TAG is an exciting thing right now because we have a fully funded drilling program underway. With the resource potential being targeted, in the next 12 months, a 477 Bcf and 49 million barrels of oil and condensate on p50 basis. That includes prospects ranging from shallow Taranaki, deep Taranaki and shallow offshore Taranaki.
It's an amazing program for TAG. And added to that is the advancement of the East Coast unconventional play that has the potential to eclipse everything else combined if we prove it to be a commercial play. We have a lot of work to do in the East Coast but it's underway….
TAG’s always been a first-mover. We are confident we can continue to safely achieve our goals. And that will create significant value for our employees, our community, and of course our shareholders as we strive to unlock New Zealand's potential and become the number one oil and gas producer in New Zealand.
At the same time, we have a duty to all our stakeholders to consider all potential outcomes of our programs underway. We expect success and we have the people to make it happen. But what TAG offers now that other companies our size can't do is we could also mitigate downside risk. We can do so with our reliable and growing shallow oil reserves. We have reliable and growing cash flow and we have a low risk shallow prospect inventory that can allow drilling to continue in the Taranaki production fairway for the next five to 10 years, while also combining this lower risk drilling activity with numerous potentially game-changing wells being drilled when it's smart for us to do so.
This is what we've strived to achieve for TAG for many years, that's why we remained committed to New Zealand. And recently I have been speaking to many of our shareholders and a common opinion from those discussions became apparent. And that is that for an investor it doesn't get much better than owning TAG right now, with the fully funded, potentially game-changing opportunity to participate in major upside potential while also having downside risk being mitigated.”
Cheal-E continues to provide good news, with three wells cased as potential oil wells – one of which is being flow tested – and Cheal-E 4 now drilling ahead.
To ensure more reliable production forecasting on future wells, we’re following a protocol of initially testing each well individually: with each flowing for approximately 15 days, and then shut in temporarily to conduct pressure and temperature analysis. During this shut-in period, the next well will be placed on a 15-day production test until all new wells at the site have been individually tested and build-up analysis completed.
During its initial 5-day flush period Cheal-E1 was testing at 600 BOEs a day, about 90% of that oil, flowing naturally without the aid of artificial lift. We know that will settle down to a more typical Mt. Messenger well average over the course of the next year, but considering the fact that Cheal E represents a substantial extension of our known oil saturation area at Cheal, we’re fully pleased with the results, and happy to be getting the proceeds from the sale of all that oil.
Patience is the watchword with Cardiff-3, which hit 4,300 meters this morning.
We've got strong gas shows in the target formations penetrated to date – as expected – with strong mudlog shows of up to 85% total gas readings in the top sections of the Kapuni Formation. But we need to be patient with this play, and are moving ahead slow and steady, trusting our experienced team as we drill through the lower K2 formation towards our final target at about 4,700m.
We're looking at three separate zones that may warrant completion: we're well into two of them so far, but still headed for the K3E Sands, our primary target. Then we’ll decide if interpreted data supports completing and production testing the well. Each zone will be evaluated independently and analyzed to determine if commercial production is a reality, starting with un-stimulated testing for a minimum 30-day flow period, then shut in for a pressure / temperature build-up, and then maybe a fracture stimulation of the well in early 2014.
This play has the potential to increase TAG’s corporate NPV by three to four times if we're successful, so as New Zealand Country Manager Randy Toone says, “We're not going to hurry anything just to try and create market excitement.” One step at a time, so far so good!
While our deep prospects have been dominating the news, the team is moving ahead methodically drilling TAG's shallow oil and gas prospects at Cheal. They took a minute to send some shots from the field of a recent perforation at Cheal-E2, as well as modeling some of the new equipment that's in place to move the oil and gas.
Taking the cap off of E-2, and getting ready to perforate.
Randy Toone on the ladder about to
drop the bar to perforate.
Smile for the camera...
And there she goes! Jack starts the
clock: it should take about 3.5
minutes to land on the firing pin at
the Urenui zone.
Hands on the well head to feel the
guns fire: 2.5 minutes... 3 minutes...
Boom! Successful perforation.
Shane already has concrete pads
poured for the permanent production
facility at the Cheal E-Site.
And he models the line heater,
already built and installed, that will heat power fluid.
Instrumentation is already in place,
waiting to be connected.
Shane explains how the power fluid
pumps will sit right on the pads.
Out the back of the facility, this is
where the pipe rack will carry gas
down to the flare tank in the distance.
Steve Webling working on the flare
Cardiff-3 has reached a depth of 3,918 meters on day-30 of its drilling, and we expect it will take another two weeks to hit our projected depth of 4,900 meters. At that point, we should know whether to proceed with hydraulic fracturing stimulation or not, depending on the total meters of net gas pay, permeability, and the volume of original gas in place that we think we can access with this well bore.
If fracturing is required (the Taranaki Regional Council has granted consent, should it be called for), careful study has shown the formations we're targeting to be completely sealed by more than 4 kilometers of impermeable rock. And TAG will only use the new generation plant-based fracking fluids, which will be contained in a closed system along with the water used.
On a mid-case (P-50) basis, the prospective resource estimate at Cardiff-3 is 160 BCF gas and 5.49 million barrels of condensate. Now only time...and a little more drilling...will tell.
The team spudded the Cardiff-3 well on September 2nd, and we expect it will take six weeks total to reach its projected depth of 4,900 meters. As of yesterday, we were at about 1,000 meters.
This is the kickoff to our high impact, deep drilling campaign in Taranaki, which will run over the next six months, and it’s the first well to target one of our Kapuni Formation prospects.
Kapuni, below the surface
The Kapuni Formation, comprised of the deep Oligocene and Eocene strata, is responsible for several major discoveries where 2P (proven and producing) reserves of 6.9 TCF gas and 372 mmbls oil/condensate have been discovered so far. This includes Shell’s nearby Kapuni Field, which has produced 1.5 TCF gas and 65 million barrels of condensate to date.
The Cardiff structure has been identified as a large anticlinal trap, some 12 km long by 3 km wide, with a number of potential pay zones within the Kapuni Sands Formation. The Cardiff gas/condensate discovery has the potential to become a substantial onshore resource, situated on trend and among several sizable deep gas/condensate discoveries in the Taranaki.
Gas with rich condensates was discovered at Cardiff within the upper Kapuni zone, which encountered 12m of net pay and flowed at over 3 million cubic feet and 100 barrels of condensate (light oil) per day with improving rates observed on long-term testing. This zone can be identified on 3D seismic to be a prospective target across the span of the Cardiff structure. And even greater resource potential exists in the deeper K1A and K3E zones, where strong gas shows were encountered over a gross 600m interval. This will be a primary target in the Cardiff-3 well.
And the big picture above the ground
More as this well, and our expanded Taranaki program as a whole, progress. We’ve got two drill rigs actively operating, and a third rig that will begin operating on our permit shortly, all within Taranaki’s main discovery fairway.
Things are rocking and rolling, and we’ll do our best to keep you informed!
Long-time resource investor Mr. Mel Z. Zummack resides in Kelowna BC, Canada where TAG Oil originated. Ten years after first investing he’s still using the pen he received, and is still a strong supporter. From all of us at TAG: "Thanks for your continuous and unwavering support, Mel!"
If you missed last Wednesday's call with TAG CEO Garth Johnson and COO Drew Cadenhead, here's a recording here.
Substantive and detailed, they ran through Q1 finances, a production report, and the kick-off of our 12-well drilling plan, targeting both deep and shallow oil and gas prospects. We're funding this fully ourselves, anticipating approximately $40 million to $42 million in capital expenditures, and we can't wait to bring more news as events unfold. In the meantime, have a listen to the call.
This coming weekend marks the kickoff of our 12-well drilling campaign, fully funded with income from the sale and production of TAG Oil's own Taranaki oil and gas, and the Company's strong balance sheet.
We'll start with the Cheal E-1 well, which continues TAG's shallow drilling program, and our first high-impact, deep gas well, Cardiff-3. should spud about four weeks later. Let's see if our unprecedented streak can continue. More reports soon as events unfold....
We’re happy to report the positive findings in a report by Horizons Regional Council, which tracks and manages the land, air, and water for a large portion of New Zealand’s north island.
Horizons visited TAG’s Ngapaeruru-1 site 11 times to monitor compliance during construction and drilling activities, and to take ground and surface water samples with each visit to test the different phases of well activity. Visits and water analysis showed no incidents – essentially giving TAG and the well site a clean bill of health.
TAG’s operating goal is to achieve 100% compliance during all activities of its drilling programs, whether it affects worker or environmental safety, and we thank our team for their care and commitment.
More about Horizons Regional Council
The Council focuses on biosecurity and biodiversity, and “works to identify potential hazards and risks to people, property, infrastructure, environment and the local economy.” The area they oversee:
- Covers 22,215 sq km of land
- Includes 160 km of coastline, with the Tasman Sea to the west and Pacific Ocean to the east
- Extends 12 nautical miles out to sea
- Is home to more than 220,000 people
More about Ngapaeruru-1
We continue to analyze the very encouraging drilling data, and our team expects to make a decision on future activities in the coming months.