TAG Oil CEO Garth Johnson and COO Drew Cadenhead took to the phone lines last week to discuss recent drilling announcements and the new fiscal year’s operational plans. Typically forthright, forthcoming and realistic, they outlined the Company’s plans and answered participant questions.
TAG’s vision remains in focus, to:
- Grow baseline reserves, production, and cash flow in Taranaki
- Build a steady stream of long-term predictable cash flow from production
- Continue to pursue high-impact Taranaki exploration in deep Kapuni and the offshore Kaheru
- Unlock the vast potential of unconventional East Coast basin assets
- Focus on maintaining balance sheet strength.
Said CEO Johnson: “Our approach to our business plan has always been to start off with an understanding of what we can afford to do. We high-grade our prospects that we have in inventory. We analyze our commitments to maintain permits in good standing. And we agree what the acceptable risks are versus the potential returns with each drill prospect, and then we execute our plan.
We always consider the amount of value that can be created by a variety of potential programs as part of our process. So we ensure we choose the right program that provides an opportunity for large-scale success without putting the Company at risk financially….
Can we guarantee success? No. But we set our sights high. We work hard. We study our data. We learn from our mistakes. We manage the risks and we stick to our business plan, which gives us the best shot at success.”
Specific details of the CapEx program
TAG has defined a $60 million CapEx program for the fiscal year, fully funded through forecasted cash flow and working capital on-hand. The investments break down as follows:
- $31 million invested in onshore shallow Taranaki, to:
- Drill five low-risk Cheal wells and two higher risk Sidewinder B oil wells
- Acquire new seismic
- Complete plant, facility and well optimization work
- $5 million slated for offshore Taranaki in preparation to drill the Kaheru prospect (40% interest)
- $3 million for an uphole completion at Cardiff-3, once the data has been studied
- $1 million to drill a well in the frontier Canterbury basin, where oil and gas seeps onshore and discoveries offshore have confirmed the hydrocarbon system is working
- $20 million to drill and test East Coast unconventional wells:
- Drill the new Waitangi Valley-1 well
- Drill the new Boar Hill-1 well
- Test the Ngapaeruru 1 well at the same time
On recent challenges
- Sidewinder Miocene gas BOEs declined rapidly early on, but are now steady at 150 BOEs a day.
- While Cardiff’s deepest K3E zone wasn’t immediately successful, the data confirms the zone is filled with hydrocarbons: gas, oil and condensate. We just have to figure out how best to unlock it.
- Meanwhile, the upper two, previously proven zones, are our next target, as soon as we have a rig free.
- The only economical rig in New Zealand is the Nova 1 rig, which is booked for two Cheal-B wells starting next week, then one East Coast deep well at Waitangi Valley. So we're looking at three to six months before that rig returns to Taranaki.
- While the actual operational aspects of the completion and testing are quick, the pre-operational setup steps for fracking in New Zealand are long and involved, and also fairly new. These include specific consents both on regional district council consents, water consents, and much more.
- Because we have to mobilize an entirely different set of equipment over to the east coast to test wells, we made a strategic / economic decision to delay further testing of the Ngapaeruru well until we had two or three wells to test back to back, if warranted.
While there are no guarantees in this business, we see every reason to continue setting our sights high. TAG Oil is excellent at reading its data, managing its risks, and sticking to its business plan. And operationally, we’re still looking ahead to another big surprise well like Cheal E1 or B5, cracking Cardiff, branching out into Kaheru offshore, and establishing a new oil and gas zone in the East Coast Basin, or maybe even the Canterbury Basin. We’re counting on our quality team, the data, excellent acreage, and sound fundamentals, but only time will tell for sure.
Read or listen to the full transcript of the FY15 Operations call here.