TAG Oil Ltd., a Canadian-based production and exploration company with focused operations in New Zealand, reports the Company has filed its December 31, 2011 condensed consolidated unaudited financial statements and management discussion and analysis with the Canadian Securities Administrators for the third quarter of the Company's 2012 fiscal year. Copies of these documents can be obtained electronically at sedar.com, or for additional information please visit TAG Oil's website at tagoil.com/.
December 31, 2011 Results (Q3 - 2012 fiscal year)
• Production revenue increased to $12,976, 714 (nine months: $26,206, 992) compared to $3,851, 621 (nine months: $8,078, 684) in Q3 of the 2011 fiscal year.
• Net income of $5,915, 997 (nine months: $10,899, 739) was recorded before deducting non-cash stock-based compensation expenses.
• Per barrel production, storage and transportation costs of $6.94 per boe (nine months: $10.73) for the quarter compared to $16.57 (nine months: $18.15) for the comparable period last year.
• Net operating cash inflow of $4.84 million for the nine months ended December 31, 2011 compared to an outflow of $464,000 for the comparable period last year.
• TAG produced 89,227 barrels (nine months: 206,905) of light oil in the quarter and sold 94,545 barrels (nine months: 209,130) of oil at an average price of $113.11 per barrel.
• TAG produced 97,709 boe (nine months: 119,104 boe) of gas in the quarter and sold 92,112 boe (nine months: 105,659 boe) of gas at an average price of $4.02 per mcf.
• Initiated a seismic program and has continued its consultation process in the East Coast Basin in preparation for a multi-well drilling campaign.
Four more successful wells drilled in the Taranaki Basin for the quarter for a total of 12 straight successful wells.
Taranaki Basin Operations:
TAG finished the December 31, 2011 quarter with excellent flow test results announced for Cheal-A8, Cheal-B5, Cheal-C1 and Cheal-C2. The Cheal-A8 and Cheal-C2 wells are now shut-in pending infrastructure upgrades required at Cheal to process high volumes of gas. Cheal-B5 continues to flow at rates ranging between 1000 bbls/day to 1600 bbls/day depending on the production configuration; optimization work continues to maximize the value of this anomolously high rate oil well. TAG also drilled the Cheal-B6 and Cheal-B7 wells during the quarter and these wells are now cased and completed for upcoming testing operations.
Cheal-B6 encountered a total of 14 meters of pay and Cheal-B7 encountered a total of 18 meters of pay within the Urenui and Mt. Messenger Formations. Both wells encountered oil and gas shows while drilling and electric logs indicated high-quality oil and gas pay. Completion and testing operations are now being conducted on Cheal-B6 and B7 while new drilling has shifted back to the Cheal-A Site with the recent spud of Cheal-A9, followed immediately by the A10 well; each well is expected to take approximately 15 days to reach total depth.
With 12 successful Taranaki wells now drilled in succession, TAG Oil has initiated planning, engineering and procurement of new and additional infrastructure to add to TAG's existing Cheal and Sidewinder facilities. These infrastructure expansion projects will become a key focus for TAG in the upcoming year. The anomalous recent high rate results, in particular from Cheal-C2 (gas well) and Cheal-B5 (oil well), have surpassed the Company's forecasted production rates materially, and necessitated the immediate expansion of oil lifting capacity, enhanced compression, LPG and liquid hydrocarbon stripping facilities, and pipelines linking all TAG production together to be completed by mid to late-2012. This plan will also allow for drilling success at TAG's high-impact deep prospects such as Cardiff and Hellfire to accelerate commercialization in the event of a discovery.
TAG Oil CEO, Garth Johnson commented "TAG is experiencing rapid growth, with a number of successful high-performance wells such as our Cheal-B5 well, achieving initial production of 1700 barrels of oil per day and the Cheal-A8 and Cheal-C2 wells, which also have high deliverability potential. Our focus continues to be unlocking value from our properties through ongoing drilling and new infrastructure projects this year to ensure timely monetization of our excellent drilling success. TAG is continuing an active Taranaki drilling program as we approach our first four unconventional wells soon to be drilled in the East Coast Basin, together with our partner Apache Corp. I look forward to 2012 being another busy year for TAG in New Zealand."
Cheal Oil and Gas Field - 100% Interest
Recent successful drilling within the Cheal field has resulted in a material increase to the Company’s production forecasts. Infrastructure enhancement projects are already underway to insure maximization of value from these new discoveries; these projects have now become an important focus for the Company’s 2012 operational plans.
TAG also expects to complete Cheal’s secondary recovery scheme in 2012, which is forecast to cost-effectively increase recovery factors significantly within the Cheal-A pool’s proved and probable oil reserves.
Sidewinder Oil and Gas Field - 100% Interest
Permanent tie-in of the Sidewinder-2 through four wells has been completed and the Sidewinder’s compression unit acquired from North America is anticipated to be installed and operational by March 31, 2012. TAG is currently acquiring 60 square kilometers of new 2D seismic data that will be followed by a multi-well drilling program within this lightly explored permit.
East Coast Basin Operations
The farmout agreement with Apache Corporation in Q1 2012 was completed to explore and potentially develop oil and natural gas resources in the East Coast Basin of New Zealand. Apache has agreed to spend up to $100 million to conduct a multi-phased exploration, appraisal and potential development program within TAG’s East Coast Basin Petroleum Exploration Permits PEP 38348, PEP 38349 and PEP 50940 (“the Permits”).
TAG and Apache have recently completed its 2D seismic program within PEP 38349 and the 2D seismic acquisition program within PEP 38348 is underway and scheduled to be completed in February. In addition, the TAG and Apache JV are continuing an extensive consultation process with various parties related to East Coast Basin exploration activities planned that include four vertical wells targeting the Whangai and Waipawa source rocks.
Liquidity and Financial Summary
TAG ended the third quarter of fiscal 2012 in a strong financial position: the Company remains debt free with net working capital at December 31, 2011 of $67 million which includes 3.85 million warrants that were exercised during the quarter, providing $13.9 million.
Production revenue was $12.98 million for Q3 and $26.21 million for the nine months ended December 31, 2011 compared to $3.85 million and $8.08 million for the same periods last year. The Company generated a net profit for the quarter of $5.9 million before deducting $1.6 million for non-cash stock-based compensation and a net profit of $10.9 million for the nine months ended December 31, 2011 before deducting $5.4 million in non-cash stock-based compensation.
During the third quarter TAG produced 89,227 (nine months: 206,905) barrels and sold 94,545 (nine months: 209,130) barrels of light oil with a selling price averaging $113.11 per barrel.
During the third quarter TAG also produced 97,709 boe (nine months: 119,104 boe) and sold 92,112 boe (nine months: 105,659 boe) of gas with a selling price averaging $4.02 per mcf.
Production cost for the quarter was $6.94 per boe (nine months: $10.73 per boe) which compares to $16.57 per boe (nine months: $18.15 per boe) when compared with the same period last year.
Expenditures on the Company’s oil and gas properties during the third quarter totaled $12.16 million (nine months: $31.93 million) primarily invested in the Company’s Taranaki operations. TAG will continue to focus on developing the shallow formations through vertical drilling operations at Cheal and Sidewinder while also planning to focus on deeper Taranaki targets such as Cardiff and Hellfire to build near-term reserves and production revenue.
As of today’s date the Company had 54,443, 234 common shares outstanding and 57,773, 020 common shares outstanding on a fully diluted basis.
About TAG Oil Ltd
TAG Oil Ltd (tagoil.com)is a Canadian-based production and exploration company with operations focused exclusively in New Zealand. With 100% control over all its core assets, including oil and gas production infrastructure, TAG is anticipating substantial oil and gas production and reserve growth through development of several light oil and gas discoveries. TAG is also actively drilling high-impact exploration prospects identified across more than 1,300 sections of land in the onshore Taranaki and East Coast Basins of New Zealand's North Island.
In the East Coast Basin, TAG Oil is pursuing the major unconventional resource potential estimated in the fractured shale source-rock formations that are widespread over the Company's acreage. These oil-rich and naturally fractured formations have many similarities to North America's Bakken Shale source-rock formation in the successful Williston Basin.
"BOEs" may be misleading, particularly if used in isolation. A BOE conversion ratio of 6Mcf: 1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Cautionary Note Regarding Anticipated Results and Forward-Looking Statements
Statements contained in this news release that are not historical facts are forward-looking statements that involve various risks and uncertainty affecting the business of TAG Oil. Such statements can generally, but not always, be identified by words such as "expects", "plans", "anticipates", "intends", "estimates", "forecasts", "schedules", "prepares", "potential" and similar expressions, or that events or conditions "will","would","may","could" or "should" occur. These statements are based on certain factors and assumptions including;
A. all estimates and statements that describe the Company's objectives, goals, or future plans relating to the seismic, testing and drilling programs in Taranaki are forward-looking statements under applicable securities laws and necessarily involve risks and uncertainties including, without limitation: risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, volatility of commodity prices, imprecision of reserve estimates, environmental risks, competition from other producers, and changes in the regulatory and taxation environment. These forward-looking statements are based on certain factors and assumptions, including factors and assumptions regarding the management's views on the oil and gas potential in the Permits, the success of any operations, and the costs necessary to complete the operations; and
B. those relating to TAG Oil's successful exploration and development of its oil and gas properties within the Cheal and Sidewinder project areas, the production and establishment of additional production of oil and gas in accordance with TAG Oil's expectations at Cheal and Sidewinder, the completion of new infrastructure at Cheal and Sidewinder, the increase of cash flow from new production, oil and gas price assumptions and fluctuations, foreign exchange rates, expected growth, results of operations, performance, prospects, evaluations and opportunities and effective income tax rates. While TAG Oil considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Actual results may vary materially from the information provided in this release, and there is no representation by TAG Oil that the actual results realized in the future will be the same in whole or in part as those presented herein.
TAG Oil is involved in the exploration for and production of hydrocarbons, and its property holdings with the exception of the Cheal Oil Field and Sidewinder project area are in the grass roots or primary exploration stage. Exploration for hydrocarbons is a speculative venture necessarily involving substantial risk. There is no certainty that the expenditures incurred on TAG Oil's exploration properties will result in discoveries of commercial quantities of hydrocarbons. TAG Oil's future success in exploiting and increasing its current reserve base will depend on TAG Oil's ability to develop its current properties and on its ability to discover and acquire properties or prospects that are producing. But, there is no assurance that TAG Oil's future exploration and development efforts will result in the discovery or development of additional commercial accumulations of oil and natural gas.
Other factors that could cause actual results to differ from those contained in the forward-looking statements related to upcoming operations, production forecast modeling and other items, are also set forth in, filings that TAG Oil and its independent evaluator have made, including TAG Oil's most recent reports in Canada under National Instrument 51-101.