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TAG Oil Reports Q3 2017 Results and Updates Recent Activities

By Editing NAI
02/14/2017 10 a.m.

TAG Oil Ltd(TSX:TAO) Oil and gas exploration and production company, TAG Oil Ltd. (TSX: TAO and OTCQX: TAOIF) is pleased to report third quarter results for the fiscal year ending March 31, 2017, in which oil and gas production, revenue from sales, and operating netbacks increased. Production over the month of February to date is above guidance with a current net daily average rate of 1,293 BOE/d (79% oil).

TAG remains disciplined and focused on optimizing and exploiting opportunities within the Company's core producing operations, which has demonstrated substantial upside potential for near-term production and reserve building, and completing additional acquisition opportunities in New Zealand and Australia. TAG is also set to resume drilling on March 1, 2017, and enter its next phase of reserve and production growth through exploration, exploitation, and commercializing the deep Cardiff gas/condensate discovery, one of TAG's premier deep gas assets in New Zealand.

TAG Oil CEO Toby Pierce commented "I am very pleased to report another successful quarter for TAG with stable production base and higher oil prices leading to improved revenues and netbacks. TAG's operations continued to remain active with workovers at our core Cheal and Sidewinder fields delivering incremental production, while successful well tests at both Supplejack and Cardiff have demonstrated near term development opportunities. Further, preliminary results from the Cheal B waterflood are encouraging and we will be further expanding the waterflood to Cheal A and Cheal E in the upcoming months. Finally, going forward we expect to shift back towards a more growth oriented trajectory focusing on drilling and exploiting our exceptional higher impact exploration inventory."

Q3 2017 FINANCIAL AND OPERATING HIGHLIGHTS

  • At December 31, 2016, TAG had $10.0 million (March 31, 2016: $16.8 million; December 31, 2015: $15.9 million) in cash and cash equivalents and $17.5 million (March 31, 2016:$22.1 million; December 31, 2015: $22.3 million) in working capital.
  • Average net daily production increased by 1% for the quarter ended December 31, 2016, to 1,185 BOE/d (80% oil) from 1,176 BOE/d (81% oil) for the quarter ended September 30, 2016. A breakdown of net production is as follows:
    • Average net daily oil production decreased by 1% to 944 B/d compared with 953 B/d for the quarter ended September 30, 2016. The decrease is primarily a result of the Cheal-B5 well remaining offline for the entire quarter due to mechanical issues and the Cheal-A7, A11, B7 and B4ST wells being offline for part of October 2016 due to power fluid pump remedials. This has been partly offset by completion of the Cheal-E5 workover and the well returning to production in October 2016, which is currently producing over 70 BOE/d; and additional oil production at the Sidewinder-1 well for the entire quarter following perforations across the reservoir and temporary gas lift installation part way through Q2 2017.
    • Average net daily gas production increased by 8% to 1.45 MMSCFD compared with 1.34 MMSCFD for the quarter ended September 30, 2016. The increase is due to completion of the Cheal-E5 workover and the well returning to production in October 2016.
  • Revenue from oil and gas sales increased by 16% for the quarter ended December 31, 2016, to $6.0 million from $5.2 million for the quarter ended September 30, 2016. The 16% increase is due to a 14% increase in average Brent oil prices. Revenues generated from oil and gas sales increased by 19% for the quarter ended December 31, 2016, to $6.0 million from $5.1 million for the quarter ended December 31, 2015. The increase is attributable to a 25% increase in average Brent oil prices, partly offset by a reduction in total gas sold by 189 BOE/d or 74% due to the compressor being offline for part of October, 2016.
  • Operating netbacks increased by 28% for the quarter ended December 31, 2016, to $23.86 per BOE compared with $18.61 per BOE for the quarter ended September 30, 2016. The increase is attributable to a 14% increase in average Brent oil prices, partly offset by a 7% increase in production costs per BOE. Operating netbacks increased by 76% for the quarter ended December 31, 2016 to $23.86 per BOE compared with$13.57 per BOE for the for the quarter ended December 31, 2015. The increase is attributable to 25% increase in average Brent oil prices, partly offset by a 25% increase in production costs per BOE. The increase in production costs in both instances is due to completion of the Cheal-B5 workover in October 2016.
  • Capital expenditures totalled $1.5 million for the quarter ended December 31, 2016 compared to $3.2 million for the quarter ended September 30, 2016. The majority of the expenditure in Q3 2017 related to the Cheal-A and Cheal-E waterflood, Sidewinder gas lift and Supplejack Upper Mt. Messenger test projects.
  • At the Cheal E site, a workover was completed to install a rod pump in the Cheal-E5 well, which has been shut-in since May 2015. Start-up commenced early October 2016 and the well is currently producing approximately 70 BOE/d (gross).
  • On October 31, 2016, TAG announced that it had signed a definitive agreement to acquire 100% interest in the PL-17 production license located in the Surat Basin of Australia for AUD$2.5 million over three years. The 25,700 acre production permit currently has 15 B/d of oil production from two wells and several exploration and appraisal prospects. On January 31, 2017, TAG finalised the conditions of the agreement, obtaining all necessary government approvals and is now operator.
  • On November 8, 2016, TAG announced that it had tested the Supplejack-1 well at rates of up to 7.2 MMSCFD from the Mt. Messenger formation before being limited by mechanical constraints. Initial estimates by TAG following subsequent testing operations and analysis indicate that the Supplejack-1 well is an economic discovery, which contains approximately 2.8 Bcf original gas in place as a mid-case estimate, with recovery factors approaching 90% with compression. Initial production rates are forecasted at over 2.0 MMSCFD.
  • On December 6, 2016, TAG announced successful initial flow testing at the Cardiff field. The Cardiff-3 well has successfully conducted an interim flow test with gas and condensate produced to surface. Further long term testing in order to support commercialization of Cardiff production via tie back to the TAG's nearby Cheal A facility will progress in Q4 2017. During the testing period the well maintained pressure, flowing water, condensate, oil and a moderate level of gas. Options to develop the well are currently being considered.

RECENT DEVELOPMENTS / LOOKING AHEAD

Cheal Waterflood

The Cheal B Mt. Messenger pool has been identified as the first phase of a larger waterflood project within the greater Cheal area. TAG's enhanced recovery waterflood project commenced on September 21, 2016, and water injection continues at a rate of approximately 700 BW/d. The pressure response in the reservoir is being monitored and TAG expects to see a production response from water injection in calendar 2017.

The Cheal A Mt. Messenger pool waterflood project has progressed with the implementation of the Cheal-A2 injection conversion project that is expected to be completed during Q1 2018. Pressure support is expected to double the recovery factor, resulting in incremental production and reserves.

Execution of the waterflood project at the Cheal E site continues, with pipeline construction completed in Q3 2017. The completion target date is the end of Q4 2017. This will involve the provision of additional pumps and associated equipment, as well as converting the Cheal-E7 well into an injection well. In addition, the joint venture submitted an application in early November 2016 to New Zealand Petroleum and Minerals to convert Cheal E from an exploration license to a mining license. This will allow the joint venture to commence water injection into the Cheal E pool upon receipt of the mining license.

Cardiff Field

Options to commercialize both the Cardiff-2 and Cardiff-3 wells are currently being considered in order to support production via tie back to TAG's nearby Cheal A facility will progress in Q4 2017. The Cardiff structure is approximately 3 km by 12 km in extent and has potential to contain a large high-liquids gas resource. The Cardiff field is situated nearby and on trend with onshore New Zealand's landmark Kapuni discovery.

Pukatea - Tikorangi Limestone Target

TAG Oil (70%) and its joint venture partner, Melbana Energy Ltd. (30%), have approved drilling of the Pukatea-1 well, located onshore in New Zealand within PEP 51153 ("Puka"), which is planned to commence in Q3/Q4 2018. The Pukatea prospect is a high impact exploration opportunity, targeting the Tikorangi Limestone, a highly productive conventional reservoir with initial flow rates of 5,000 to 10,000 B/d in nearby wells. The Puka joint venture has recently upgraded the prospective resources attributable to the Pukatea prospect, which are estimated to range from 1.3 to 40 million barrels (low-high estimates) with a best estimate of 12.4 million BOE. The chance of success for Pukatea has also been revised upward from 16% to 19%. The Pukatea prospect is proximal to existing infrastructure and has several low-cost alternative development paths. The Pukatea-1 well will be drilled from the existing Puka production pad where the previous operator has previously drilled three wells.

Sidewinder Recompletions

A low-cost perforation of a deeper zone in the existing Sidewinder-1 wellbore enabled access to a previously unproduced oil leg resulting in additional production. On that success, a further workover on the Sidewinder-2 well has been progressed and is scheduled to be completed in Q4 2017. It is expected that this will add approximately 85 BOE/d to production. Several additional gas wells at Sidewinder and Cheal continue to be reviewed as candidates for recompletions as oil producers.

Supplejack Drilling

Planning for drilling of the Supplejack-A2X well on the Waitoriki permit has commenced with drilling to begin in March 2017. If successful, the Supplejack-A2X well will be completed in Q1 2018.

TAG will continue to work towards achieving the following goals:

  • Deploy enhanced oil and gas recovery techniques in its producing fields to optimize production and lower per barrel production costs to maximize the value of its operations;
  • Diligently evalute its exploration prospects to enhance the development of its exploration program;
  • Recommence drilling exploration and appraisal well opportunities;
  • Review potential acquisitions of overlooked/undervalued opportunities in New Zealand and Australia; and
  • Manage its operating cash flows and balance sheet as effectively as possible to minimize costs while focusing on shareholder returns.

About TAG Oil Ltd.

TAG Oil Ltd. (http://www.tagoil.com/) is a development-stage international oil and gas producer with established high netback production, development and exploration assets, including production infrastructure in New Zealand and Australia. TAG is poised for significant reserve and production growth with several oil and gas fields under development and high-impact exploration in proven oil and gas fairways. TAG is debt-free and currently has 62,212,252 shares outstanding. 

BOEs:

TAG Oil has adopted the standard of six thousand cubic feet of gas to equal one barrel of oil when converting natural gas to "BOEs." BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 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.

Resource Estimates:

The resource estimates in this document are by TAG professionals, a non-independent qualified reserves evaluator, in accordance with NI 51-101 and the COGE Handbook, with effective dates of November 30, 2016, andDecember 1, 2016.

Prospective resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development. There is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.

Exploration for hydrocarbons is a speculative venture necessarily involving substantial risk. TAG's future success in exploiting and increasing its current reserve base will depend on its ability to develop its current properties and on its ability to discover and acquire properties or prospects that are capable of commercial production. However, there is no assurance that TAG's future exploration and development efforts will result in the discovery or development of additional commercial accumulations of oil and natural gas. In addition, even if further hydrocarbons are discovered, the costs of extracting and delivering the hydrocarbons to market and variations in the market price may render uneconomic any discovered deposit. Geological conditions are variable and unpredictable. Even if production is commenced from a well, the quantity of hydrocarbons produced inevitably will decline over time, and production may be adversely affected or may have to be terminated altogether if TAG encounters unforeseen geological conditions. TAG is subject to uncertainties related to the proximity of any reserves that it may discover to pipelines and processing facilities. It expects that its operational costs will increase proportionally to the remoteness of, and any restrictions on access to, the properties on which any such reserves may be found. Adverse climatic conditions at such properties may also hinder TAG's ability to carry on exploration or production activities continuously throughout any given year.

The significant positive factors that are relevant to the resource estimate are: proven production in close proximity; proven commercial quality reservoirs in close proximity; oil and gas shows while drilling wells; and calculated hydrocarbon pay intervals from open hole logs.

The significant negative factors that are relevant to the resource estimate are: tectonically complex geology could compromise seal potential; and seismic attribute mapping can be indicative but not certain in identifying proven resource.

Cautionary Note Regarding 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. 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. All estimates and statements that describe TAG's objectives, goals, or future plans relating to operations are forward-looking statements under applicable securities laws and necessarily involve risks and uncertainties. Actual results may vary materially from the information provided in this release, and there is no representation by TAG that the actual results realized in the future will be the same in whole or in part as those presented herein.

Other factors that could cause actual results to differ from those contained in the forward-looking statements are also set forth in filings that TAG and its independent evaluator have made, including TAG's most recently filed reports in Canada under National Instrument 51-101, which can be found under TAG's SEDAR profile at www.sedar.com. TAG undertakes no obligation, except as otherwise required by law, to update these forward-looking statements in the event that management's beliefs, estimates or opinions, or other factors change.



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