TAG Oil Blog

TAG's near-term catalysts noted in a new investor "Top-Picks" report

Posted by Denise della Santina on Jan 15, 2014 8:02:00 AM

Noted Canadian investment bank, M Partners, just released its Top Five Picks for 2014, and TAG Oil made the cut. The report highlights the up and comers on the firm’s investment radar for the year ahead, and each of the five companies profiled is expected "to lead their respective universe of coverage over the course of the year."

So, what do they like about TAG Oil?

Screen Shot 2014 01 10 at 1.40.46 PMThey appreciate TAG's strategy of establishing its cash-flowing production base in Taranaki to fund the search for higher impact, deep gas plays with considerable upside potential.

And that the production income from our shallow, producing Taranaki fields has led to a solid balance sheet which also "de-risks" the enormous unconventional resource potential in TAG's East Coast Basin permits, plans for which are advancing in 2014.

They report that TAG shares currently trade at 2.2x EV/EBITDA (calendar 2014), which is a significant discount to its Southeast Asian/Australasian comps at 2.9x.

In their words, "Underlying our Buy rating is the attractive valuation and significant production growth trajectory, driven by the high-impact deep gas Taranaki program now underway and funded by the solid balance sheet and cash flow from its shallow Taranaki production base."

We couldn't have said it better ourselves.

Topics: third-party reports, Financial coverage, Announcements

Exchange approval for continued share buyback

Posted by Denise della Santina on Dec 9, 2013 9:26:00 AM

Via press release on Friday (and here for those of you who missed it) TAG announced its intention to acquire up to 6,073,339 of its common shares for cancelation through the Toronto Stock Exchange, subject to TSX acceptance. 

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TAG's share buyback program is based on our belief that the market price of the Company's shares don't reflect their underlying value. Purchasing and cancelling shares will increase the proportionate interest of remaining shares, which is to the advantage of shareholders. To follow the progress please click here: http://canadianinsider.com/node/7?menu_tickersearch=tao

The common shares that may be repurchased over a twelve-month period represent approximately 10% of TAG's 60,733,391 outstanding common shares in the public float. There have been 867,000 common shares purchased and cancelled under a normal course issuer bid by TAG within the past 12 months at an average weighted purchase price of $3.83 per common share. Now back to drilling for oil and gas!

Topics: Financials, Announcements, TAG shareholders

Ngati Ruanui kaumatua Ngapari Nui and TAG Oil sow the seeds of respect

Posted by Denise della Santina on Dec 6, 2013 12:28:00 PM

In early October we were delighted to sign a formal partnership agreement with Ngati Ruanui, whose traditional tribal lands extend from Hawera to Stratford, in the Taranaki. This was a high priority for TAG, and we worked diligently to get here, as it forms the foundation for a long, strong and mutually beneficial relationship for years to come.

Garth Johnson

The agreement is based on a number of critical guiding principles that recognize the aspirations of both TAG and Ngati Ruanui. As CEO Garth Johnson has said, “We

want many of the same things: to be economically successful but never to the detriment of high environmental standards.” One practical example is Ngati Ruanui’s environmental team having archaeological oversight and monitoring rights for any earthworks TAG carries out in the region.

Again, Garth Johnson: “This agreement is based on mutual trust, respect, and quality of life. To me, it means we have each others’ backs.”

Topics: Taranaki, Announcements

FY 2014 Q1 Webcast & 12 Well Drilling Announcement

Posted by Denise Marshall on Aug 19, 2013 11:15:00 AM

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.

Topics: Financials, Financial coverage, Announcements

Launching FY 2014 from a great platform

Posted by Denise della Santina on Jul 8, 2013 12:48:00 PM

Here are a few excerpts from TAG Oil’s 2013 year-end conference call, conducted by Chief Executive Officer Garth Johnson, and Chief Operating Officer Drew Cadenhead on 28 June. You can listen to the full podcast here, see details and financials in the year-end press release here, and access the Company’s MD&A / Annual Report here. But these excerpts have some pretty interesting pieces of information shared by Garth and Drew.

The transcript is from Thompson Reuters, and the subheads are ours for your scanning convenience. Needless to say, we’re chomping at the bit to get our next phase of exploration underway!

Drew on TAG’s reserve estimates….

“With a lean team of only about a dozen professionals handling all the operations down here in New Zealand, we knew that focusing on a major infrastructure build-out project as we did would result in a minor slowdown of drilling operations. Now, we still managed to drill six new wells in Taranaki this year, all successful, and our first ever unconventional tight oil test on the East Coast Basin, and I'll be discussing these projects in more detail later in this conference call.

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As far as how our reserve situation looks, we are pleased to announce a moderate growth in 2P reserves even though we concentrated most of the year on successfully completing this major infrastructure project. We produced a total of 641,000 BOEs during the year on an average or an average of about 1,750 as Garth said. Taking that production into account, we managed about a 4% increase in 2P reserves to 6.1 million BOEs, and we maintained our NPV10 at a little over $200 million. It's noteworthy that 88% of our 2P reserves are oil.

We feel timing didn't help us with the actual optics of this year's reserve report. With a fiscal year end of March 31 and then project start-up date of March 27, we didn't have time to bring a lot of our behind pipe production on-stream to provide sufficient data to Sproule for this year's report. As a result, Sproule is mandated by the rules of National Instrument 51-101 to volumetrically estimate proven and probable reserves in newly drilled areas. 

Now, the original discovery wells in Cheal have now been producing since August 2007. So, we have nearly six years of production data on some of our wells now to help us determine how our new wells will behave and produce over time. What we know for sure is all our wells produce far greater ultimate reserves than what was historically predicted using early volumetric data.

A great example of this is Cheal-B3, which after the first year of production was volumetrically assigned ultimate recoverable reserves of 70,000 barrels. Now, after only five years — don't forget most of these wells will have a 15-year to 20-year reserve life — that particular well has produced about 400,000 barrels. Once we get a few years of production history under our belts for each pool, Sproule can revert to using a decline analysis to determine ultimate recoverable reserves. That analysis more accurately reflects the nature of our drainage areas for these Miocene turbidite reservoirs.

The seismic sees the sweet spot that's where we drill, but the ultimate drainage occurs over a much larger area than just that sweet spot. That's the situation we find ourselves in this year with a number of our new wells: Sproule doesn't have enough production history to use a decline analysis yet, so instead they map the sweet spot volumetrically and assign what we think are very conservative reserve numbers. This is particularly evident at Sidewinder, where our new wells, as Garth mentioned, Sidewinder-A5 and Sidewinder-A6 were volumetrically assigned a total of approximately 0.5 Bcf of ultimate recoverable reserves between the two wells in this year's report.

In the first 90 days of production since fiscal year-end, those two wells have now surpassed that reserve allotment, and they show no signs of slowing down. There will obviously be reserve upgrades next year, but the result of this overly conservative reserve assessment in all our new wells definitely separates what we estimate internally for TAG reserves from what Sproule has assigned us this year.

At Sidewinder, this discrepancy has resulted in an impairment on the property this year given
we have the long consenting delay in getting these new wells drilled, as Garth mentioned002 earlier, and then only a few weeks' production data before our fiscal year-end. We're actually considering commissioning a mid-year reserve report update this year, which given the production data we have achieved since the cut-off for this year's report, we are certain will materially affect the reserves we're disclosing at this time.

One thing I would like to mention with respect to our reserves is that 80% increase in 2P original oil in place Sproule has assigned to our core producing formation in Taranaki, the Mt. Messenger formation. This increase in recognized 2P original oil in place can be attributed to Sproule's recognition of the extent to which bearing sands must be contributing to production from individual wells. It stems back to the comment I just made on volumetric reserve determination versus decline analysis earlier.

Sproule is now starting to concede that much larger areas of gross sands have to be contributing to the production from our wells in order to balance existing well performance with volumes in place. The alternative is to assign unlikely recovery factors greater than 60% or 70% to the existing areas to account for what we've already produced. Now what this all means is a very positive outlook for continued additions of proven and probable reserves in the future of our core properties.

Now, I know original oil in place doesn't have any bearing on our NPV now, what it does mean is an independent third-party recognizes the extent of the oil accumulations within our properties and it is only up to TAG to keep drilling and shift those original oil in place numbers to proven reserves.

To date, we have drilled up less than 25% of the Cheal Mining License and 10% of Sidewinder. We've just increased that acreage further with a successful 2012 blocks offer award more than doubling again our acreage right adjacent to these proven areas. So, we're looking forward to many years of continued drilling on this core shallow cash flow machine that we have established now in Taranaki.”

Garth on projects in this year’s pipeline…

“TAG shareholders will be participating in a program that's never been seen in New Zealand before, never been done before, with the potential for some very significant results.

005We've contracted four rigs to be working simultaneously to drill a minimum of nine shallow Taranaki wells, two deep Kapuni wells in Taranaki, and at least one more East Coast unconventional well in the next six to nine months with a cost to TAG of approximately $39 million. It is fully funded using cash flow on our strong balance sheet.

I think this ability to commit to such a program is what separates TAG from any other junior explorers, and we are doing so with confidence that we'll — that what we drill stands up technically and can be done safely, methodically to obtain the best results possible.

We have established low risk baseline production and cash flow at Cheal and Sidewinder, got many more years to drill there. We have an understanding now regarding the relatively low declines associated with the shallow production. We've maintained a respectable capital structure with less than 60 million shares outstanding. We have got a strong balance sheet, no debt, 100% of our infrastructure is owned, and the infrastructure is built to meet our needs for the future.

A lot of other companies are scrambling and needing to dilute to carry out their programs, to complete acquisitions, and doing so with probably three to four times more people on the payroll. So, we are pretty proud of what we've resulted and the foundation that we built that would carry us into the future.

Fiscal year 2014 provides our shareholders with a number of new drilling catalysts and success in one or all of the plays that we are going to be drilling inclusive of the deep Kapuni plays, the East Coast unconventional, and possibly even Canterbury. It will get TAG the opportunity to become a much larger producer and a reserve-based company.

We look at the nine shallow Taranaki wells to be drilled by the end of calendar 2013 as an opportunity to increase our reserves, maintain and possibly grow our baseline production and cash flow, and continue this for many, many years at relatively low risk. It also allows us to add deep drilling and more focus to our East Coast operations, and we have brought in a JV partner in East West Petroleum to our shallow Taranaki program that allows to focus on the deeper and the East Coast plays, and we also have a carry on those initial Taranaki plays up to $10 million, which mitigates a little bit of risk on that shallow play.”

Drew on the Heatseeker deep prospect…

“Now after Cardiff comes the play that probably excites me the most, Heatseeker is a classic explorer's prospect. Picture this: a massive anticline feature, almost a perfect upside down mixing bowl sitting on a table. That's what the 1.5 Tcf Kapuni field looks like on seismic. That pool was discovered in the '50s, has only 18 wells into it, but has drained over a Tcf of gas, 65 million barrels of condensate to-date, and it keeps on spewing hydrocarbons today.

Now, picture right beside that upside down bowl on the table, what looks like an identical upside down bowl sitting right beside it. The only problem is someone has erected a wall, so you can only see three quarters of that bowl. That's Heatseeker, three-way dip closure is clearly seen on existing seismic, but the fourth and critical direction of dip closure is situated right under Egmont National Park where Mount Taranaki, our picturesque volcano is situated. No seismic has ever or will ever be shot in this park.

The nature of the structural belt in this area suggests that there will be that critical fourth direction of closure, but there is only one way to find out and that's to drill a well. We've got a deep rig contracted. We have a service access agreement signed. We'll move the rig on right after Cardiff and find out. As Garth said earlier, any one of these deep plays has the potential to really transform TAG if we're successful.”

Drew on the East Coast Basin…

“We can't give up too much detail at this stage as there is a critical land sale occurring in New Zealand later this year, bid deadline is September 26, and there are few blocks up for bid offsetting us within the East Coast Basin. But I can tell you, we are extremely proud of the operational job we did in the drilling of our first deep test on the East Coast.

Ngapaeruru-1 was drilled without a hitch in about three weeks. We anticipated and encountered extreme overpressures. We encountered swelling mud stones and a few other nasty drilling obstacles that have been a nemesis of past drillers in this tricky basin. But again, our combination of Kiwi experience and North American technology allowed us to drill our well easily, collect all the critical data we intended to, and not have a single environmental health or safety issue.

The small minority of anti-fossil fuel opposition we had before we spudded the well barely had time to organize a protest before we were gone. The vast majority of our neighbors there, all of the regulatory bodies like local and regional councils couldn't believe what a professional operation it turned out to be. Drilling is new to these people. I think they were expecting wooden derricks and a spindle top blowout or something.

The results of this first well were encouraging, to say the least. In order to keep that over pressuring in check, we took no chances and used extremely heavy mud weights while drilling. Despite that, we went from over 1,000 meters of zero oil and gas shows through the over burden to instantaneous strong shows once we entered our target zone. Those shows continued unabated for 155 meters before they instantly disappeared to absolutely no shows again until TD, and that tells us a couple of things.

Number one, the seal looks to be working as no shows were seen above the zone. The zone itself definitely has hydrocarbons in it, but of course that was expected. We knew these source rocks were working from the quality and quantity of oil and gas seeps in this basin, but probably most important is that there seems to be permeability associated with the zone. That's the only way we would see the shows we did even given the high mud weights we were using.

We collected a lot of core, we shot Schlumberger's logs I've never even heard of before focusing on unconventional parameters and we collected live samples of liberated gas from the drilling mud itself. All of this data is now in various labs, mainly in New Zealand and Australia, where we're working with specialists from around the globe to interpret and plan the next step to be taken with the play, and in particular this wellbore.

What I can tell you is, we would definitely be completing this well, probably not for at least three to four months until we get all the data back from the labs and it's all interpreted, but Ngapaeruru-1 was not a red light, it was not an orange light, it is definitely a green light from what we have seen so far.“

Conversation with analyst David Phung about production numbers…

David Phung:  “So, current production is about 2,660s and you still have two wells behind pipe. What do you expect the production to be after you bring those wells on? …. I remember last time you were expecting yield the second half of this year, you'll be averaging around that 3,000, do you need to bring that down a little bit considering that you are going to be at 3,000 already once you bring these wells on?”

Drew Cadenhead:Yes, we've got a couple of wells behind pipe still to tie in. We also have two of our key wells just undergoing regular maintenance, wax-cutting right now. So, given that we've tested all these wells, we do expect production once all wells are on shortly here to be at about 3,000 BOEs a day.  …  Most of the wells we brought on now are — have moved into that stabilized production flow, that really slowed decline section of our curve now, and we're still optimizing wells as we move forward here. Part of our biggest push in the last month or two here is to go well by well and look at our pumping procedures. And each well we do, we're making a little bit of improvement on each one, a little bit of gains. So at this time, I think we'll leave guidance as we said in that 2,500 to 3,000 barrel range for the rest of the year, and if that changes, we'll certainly let you know.“

Discussion of Cheal C3 becoming an oil well after its initial gas flow…

David Phung:…You're saying that the Cheal-C3 well, you are seeing an increased oil rate over time and you're needing to install oil pumping equipment there. Is that the only well where you're experiencing that and what are the before and after oil [cap]?”

Drew Cadenhead: “You're breaking up a little bit there, David, but I think I've got most of that question. Cheal-C3’s starting to look like it's more like an oil well, and do we have any other wells like that? We have one other well like that; it's Cheal-A8, which originally on initial 15-day test showed itself as a pure gas well. We built facilities to assume that.

Same thing with C3, we have built facilities to assume that, but on further production from those wells, we noted that they very quickly turned to predominantly oil producers.

So, obviously, a streak of gas sand within these multilayer turbidite sands, but the rest of them being oil: gas is obviously going to flow preferentially to oil first. So once that initial streak of the gas sand had spewed out, the oil started coming afterwards. So we're shifting two wells that we previously thought were going to be gas wells, Cheal-A8 and Cheal-C3, into Cheal oil producers with our regular pumping configurations.”

David Phung:Okay. So it's not, the gas is from a different interval then, it's not really a mini gas cap of any sort, right?”

Drew Cadenhead: “No. These reservoirs are not single volumes, turbidite reservoirs are a series of  — in a 20-meter section, there might be 30 different sands separated with shales that are 0.5 meter thick each. And oddly in these sands, once in awhile, we just get one of those sands that has oil or gas or even water, once in awhile in it, and the rest of them all oil, and they don't need  — particularly need — to be at the top, they could be in the middle, they could be at the bottom.

It's a very strange physical phenomena, but well proven in these Mt. Messenger and Urenui reservoirs. So, it is not a gas cap situation where we've blown off the energy from the pool. It's single lens of sand within the overall net package of sands that happen to be gas bearing, but the rest are oil bearing, it appears now.”

David Phung:Okay. And maybe just a little bit more detail on Cardiff there. How many intervals are you planning to fracture stimulate, and can you talk about in a little bit more detail on how you plan on stimulating those zones?

Drew Cadenhead:Right. There are three main zones in the Kapuni Sands that we're going to be looking at Cardiff. The top zone is called the McKee Sands, then the K1A Sand, and then the K3 Sand, the deepest one. The deepest is the thickest. Second one is the middle one and the top one is the thinnest. All three sands have been produced and tested, gas and condensate in the past in sub-economic rates. …  We'll have a clean set of logs across all three of those zones, and from those logs and from the information we gather while we are drilling, we'll plan our fracking procedure. We've got our fracking consent already in to the local regional councils here: we do plan on fracking all three zones.

We'll start at the bottom zone, the thickest zone, the K3A and take that one definitively itself first, so we will frac that, we will test it, we will give it a chance to make a definitive decision on it before if it's not economic for us, and then we will move up to the second one and the same thing, test that definitively and then move up to the final McKee sand and test that one.

So at the end of the day, we may well have a continuing completion operation going on there for the next 10 or 15 years; as one zone depletes off we'll go up to the next one, but initially we want to have a fair chance at all three, we don't want a chance any interflow between the three, we want to test each one individually and get definitive answers for each one.”

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Topics: Cheal Production Facility, Financials, Financial coverage, Announcements, Cheal Oil Field, oil and gas production, Cardiff Deep Gas, tight oil

Praise and mutual respect at the Ngaere Cheal Plant Opening

Posted by Denise della Santina on Jun 15, 2013 12:11:00 PM

New Zealand Prime Minister John Key officially opened TAG Oil’s expanded gas production plant at the Cheal-A site last Friday. About 100 others joined the festivities, including government ministers, representatives of Taranaki's Ngati Ruanui, North American analysts, principals from local elementary and high schools, landowners, and regional organizations who may soon be hosting other explorers, as New Zealand expands its search for oil and gas.

Prime Minister Key flew to Taranaki to show the government’s full support of TAG Oil and New Zealand’s commitment to its energy sector: "Taranaki is a magnificent example of the energy industry's potential to create employment and income. The region shows that if you get it right, there's huge potential for a safe, environmentally sensible and highly productive way of bringing wealth to New Zealand."

Debbie Ngarewa-Packer, South Taranaki's Ngati Ruanui iwi chief executive, was equally positive, thanking TAG for "investing in this nation and for investing in Ngati Ruanui." She continued with her praise of TAG’s open communication with both the Taranaki iwi and Cheal’s neighboring farmers from the start. 

As TAG Oil COO Drew Cadenhead expressed at the opening, we in turn are fully appreciative of our neighbors, our valued local workers and the New Zealand government for their support. We’ve been in the business long enough to never take trust and mutual respect for granted.

Image 7 resized 600After the breakfast and speeches, New Zealand Prime Minister John Key sent the gas production plant into full production with a few mouse clicks, and then toured the facility.

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Cheal Plant opening ceremonies graced by
a Ngati Ruanui dance.

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PM John Key etches his initials into the ice on the gas refrigeration unit.

Topics: Cheal Production Facility, Taranaki, Announcements, New Zealand, oil and gas production

Infrastructure complete: Let the behind-pipe oil and gas flow!

Posted by Denise della Santina on Apr 2, 2013 12:45:00 PM

TAG geologist and geotechnical specialist Alexandra Johansen took a tour of Sidewinder and the newly completed Cheal oil and gas processing facility with a few other members of the team. We think you’ll agree, these shots are a far cry from the bare patch of land we shared back in August.

Great job to the team for their hard work freeing up our behind pipe oil and gas. But as ever, the work continues: Our engineers are busy tying the remaining wells into the plant, and over the next several weeks they’ll be fine tuning to make sure we get the flow optimized. 

Looking towards Rival #1, overview of the gas plant.

Overview of the gas plant looking towards Rival #1 on Cheal A-11: complete, and fully running right on time!

Shane Hamnett, Alex Johansen, Jack Doyle at gas plant

Shane Hamnett, Alex Johansen and Jack Doyle in the middle of the gas plant.

Vector meter skid at Cheal C site

The vector meter skid at the Cheal C site. It may not look like much but it was the last piece of work before we turned Cheal gas on to the sales line.

Pipeline inspection gaugues

Pig (pipeline inspection gauges) launchers to maintain the pipelines from C-to-A, A-to-C, and C-to-Vector, without having to interrupt the flow of hydrocarbons.

Sidewinder A-7HF

9 5/8" casing awaiting intermediate casing point on Sidewinder A-7HF. We normally run 8 1/2" casing, but this hole will be going to 4000m.

Cheal A-Site

Shane and Alex at the Cheal A-Site, with the Rival Rig #1 in the background for workover.

Gas-to-gas exchanger

Gas-to-gas exchanger with the de-ethanizer tower in the background, on a beautiful New Zealand fall day.

Topics: Cheal Production Facility, Cheal-C site, Announcements, pipeline, Jack Doyle

Macquarie Capital Markets joins TAG Oil coverage

Posted by Denise della Santina on Mar 25, 2013 5:44:00 PM

Macquarie GroupWe're pleased to announce that David Popowich of Macquarie Capital Markets Canada has initiated coverage on TAG Oil.

Please see the full list of analysts here.

Topics: Financial coverage, Announcements

TAG Oil as Taranaki Basin corporate citizen

Posted by Denise della Santina on Jan 3, 2013 12:08:00 PM

One way TAG Oil is pleased to support our community is by helping to refurbish Ngaere School’s Lowgarth Hall with a $5,000 a year award for the next five years. This year’s grant went towards upgrading the lighting and heating systems. Though New Zealand is in the midst of summer, they’re looking ahead, and this work will make the Hall much more comfortable for the many groups that use it year-round. In addition, the upgrades will reduce the amount of energy used, and the school’s power bills.

TAG Oil as Taranaki Basin corporate citizenIn other community news, TAG awarded its first annual scholarship to Matt Simpson, a senior at Stratford High School. Matt was selected to receive the scholarship out of a worthy field of candidates based on his impressive academic career as well as his interest in pursuing an engineering or sciences degree. He’s spending his summer working at TAG Oil’s Cheal A site, gaining some first-hand oil and gas experience prior to going to the University of Canterbury.

Whether you’re rounding the bend towards shorter nights and warmer days, or celebrating your longest day of the year in the southern hemisphere, happy holidays and all the best for your new year.

Topics: Taranaki, Announcements, New Zealand

New Zealand awards TAG acreage in the Taranaki discovery fairway

Posted by Denise della Santina on Dec 12, 2012 9:39:00 AM

2012 Block Offer Imagery 21A very pleased Garth Johnson (TAG Oil CEO) poses for a photo with New Zealand Minister of Energy and Resources Phil Heatley at the 2012 Block Offer awards ceremony.

At the ceremony, TAG Oil was awarded four onshore Taranaki Basin exploration blocks, expanding our acreage by another 37,000 gross acres. More importantly, it’s acreage that sits in the main Taranaki oil and gas discovery trend. TAG has extensive 2D and proprietary 3D seismic over much of the acreage, which indicates several new prospects that we look forward to drilling. The awards initially add at least 10 drilling prospects plus the numerous leads in close proximity to the producing Cheal oil field and infrastructure.

TAG will operate the new permits and JV partner East West Petroleum will fund four wells within PEP 54876, 54877 and 54879 in 2013, earning East West a 50% interest in PEP 54876 and PEP 54879 and a 30% interest in PEP 54877.

PEP 54873 (100% TAG) provides several shallow drilling leads along with significant exploration upside via a drill-ready deep gas and condensate prospect that has similar geological features to the adjacent Kapuni gas/condensate field.

Topics: Taranaki, Announcements, Kapuni gas/condensate, Cheal Oil Field