Tuesday, August 02, 2011
TAG Oil Ltd.
TAG Oil has filed its audited financial results, Management Discussion and Analysis and Annual Information Form with the Canadian Securities Administrators for the period ended March 31, 2011.
Year-End March 31, 2011 Operating Highlights
- Production revenue for 2011 increased to $13,088,423 compared to $6,527,585 in 2010.
- TAG produced 150,742 net barrels of light oil in fiscal 2011, sold at an average price of $86 per barrel with production costs reduced to less than $20 per barrel.
- Significant gas discovery with the Sidewinder-1 well was followed by three additional Sidewinder discoveries.
- Behind-pipe production capability of more than 5,000 barrels of oil equivalent per day is ready to come on production.
- The Cheal-B4ST well discovered light oil in the Urenui Formation (~1400m), and a second producing formation is now under development at the Cheal field.
- TAG acquired a 100% interest in the Cardiff condensate-rich deep gas discovery.
- Light oil was discovered in three shallow wells during recent drilling in the East Coast Basin, confirming the underlying shale formations as the source of the oil.
Reserves, Production, Drilling — Taranaki Basin
As previously announced, as at March 31, 2011 TAG's independently assessed, proven and probable reserves stood at 1,677,000 barrels of oil equivalent ("BOE"). This assessment accounts for just 475 acres of the 7,487-acre Cheal permit, and only 107 acres of the 7,910-acre Sidewinder permit: The report included an initial reserve estimate from Sidewinder-1 alone, as TAG Oil's five subsequent discovery wells were completed after the fiscal year-end cut-off.
During the 2011 fiscal year TAG's production rate averaged 413 barrels of oil equivalent (BOE) per day. Current production is now at approximately 950 BOE per day with a ramp-up past 5,000 BOE per day as TAG brings "behind-pipe" production online over the coming months.
Production from these new oil and gas wells is awaiting Cheal's minor facility upgrade and the commissioning of the Sidewinder Production Station, both on schedule for completion in coming months. TAG's operations in Taranaki continue to deliver better-than-expected results and have encouraged the Company to accelerate the next phase of exploration drilling, now scheduled to commence in September 2011. This drilling campaign will further target the Mt. Messenger and Urenui Formation prospects as well as potential deeper wildcat targets identified.
During the fiscal year TAG significantly expanded its Taranaki business and prospects with the acquisition of the Cardiff condensate-rich gas discovery. Situated immediately adjacent to New Zealand's landmark Kapuni condensate-rich gas field, the large Cardiff anticline extends across an area some 12 km long by 3 km wide—and the Kapuni Formation can be mapped across the entire structure. In close proximity to TAG-controlled infrastructure and with the strong Taranaki gas market, Cardiff has the potential to become a strategic long-term asset.
Fractured Shale Exploration — East Coast Basin
In 2006, TAG Oil acquired a large land base that covered key acreage potentially prospective for fractured shale exploration in two prospective formations: the Waipawa Black Shale and Whangai Shale.
As part of our scheduled commitments to the New Zealand government, we have voluntarily relinquished some acreage that we've determined to have no exploration potential. As a result of high-grading the acreage, TAG has retained 1.7 million acres (2,656 sections) of what the Company interprets to be the most prospective acreage for both conventional and unconventional exploration.
In November 2008 the Company retained AJM Petroleum Consultants to independently assess the resource potential of the Waipawa Black Shale and Whangai Shale prospects within our permits. The report only considers 200,000 acres of our current 1.7 million acres and concludes a best case estimate of 12.6 billion barrels of oil equivalent of undiscovered Hydrocarbon-In-Place.
Undiscovered Resource Potential on 200,000 Acres of Shale
| Billion Barrels of Oil in Place | Low Case | Best Case | High Case |
| Unconventional Exploration | 4,022,263,000 | 12,654,778,000 | 39,835,707,000 |
Since TAG first secured the East Coast Basin shale prospects, the Company has compiled significant critical data including new 2-D seismic data, detailed core and oil-seep analysis, extensive geological surface mapping, and shallow stratigraphic drill testing. As part of the Waitangi Hill area evaluation in Petroleum Exploration Permit 38348, TAG drilled three shallow stratigraphic wells to total depths of 250-300m. All three wells intercepted oil-and-gas-bearing sands under anomalously high pressures, with two of the wells intercepting 11 to 13 meters of gross potential oil pay at approximately 200m depth. All three wells recovered 50-degree API sweet light crude oil, which was lab tested, confirming the source of this high quality oil to be from the underlying Waipawa and Whangai Shale formations.
Liquidity and Financial Summary
TAG ended the year financially very strong and enters fiscal 2012 as a much more substantial corporation with rapidly growing oil and gas production and a relatively undiluted capital structure. Production revenue for 2011 more than doubled over last year to $13,088,423. and generated an operating profit of $6.5 million. TAG remains debt free and our net working capital as at March 31, 2011 was $69.38 million.
During the year TAG completed two equity financings for net proceeds of approximately $75 million. On May 5, 2010, the Company closed an equity offering with a total of 7,700,000 units and 231,000 broker-warrants for net proceeds of $18,534,174. Each unit is comprised of one common share and one-half of one common share purchase warrant. Each whole warrant will be exercisable at $3.60 and will entitle the holder thereof to acquire one common share up until November 5, 2011.
On November 17, 2010, TAG closed a bought deal common share public offering. The Company sold a total of 10,300,000 common shares at a price of $5.20 per share. The Company also granted to the underwriters an over-allotment option to purchase up to an additional 1,250,000 common shares at the same price, which was exercised in full on November 26, 2010. Total net proceeds from the bought deal equity offering including the over-allotment totaled $56,163,805.
The Company currently has 50,069,896 common shares outstanding and 57,566,060 common shares outstanding on a fully diluted basis.
Capital Expenditure
The majority of TAG's capital expenditure items relate to multi-well exploration drilling, optimization work and facility construction. Capitalized oil and gas expenditures during fiscal 2011 totaled $21.8 million as follows:
| Cheal Field | $11.40MM |
| Sidewinder Field | $9.6MM |
| East Coast Shale | $658,139 |
| Kaheru (offshore JV) | $127,879 |
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