TAG Enters Farmout Agreement with Apache in NZ East Coast Basin

- TAG Enters Farmout Agreement with Apache in NZ East Coast Basin

Friday, September 02, 2011
TAG Oil Ltd.

TAG Oil reported that it has entered into a farmout agreement with Apache to explore and potentially develop oil and natural gas resources in the East Coast Basin of New Zealand.

Apache has agreed to conduct a multi-phased exploration, appraisal and potential development program within TAG's East Coast Basin exploration permits PEP 38348, PEP 38349 and PEP 50940. The Permits comprise in excess of one million prospective acres of onshore oil and gas opportunities located on the southeast portion of the North Island. TAG currently holds a 100% working interest in the properties.

Apache has agreed to pay for a portion of TAG's direct costs incurred to date, as well as providing TAG a full carry on three phases of operations to a maximum agreed cost in each phase. If the agreed cost is exceeded in any phase, or if additional operations are conducted, Apache will pay a majority share of any drilling or seismic costs in the specified percentages set out in the Agreement.

Each phase of operations will include an aggressive program of both 2D / 3D seismic and drilling with Apache earning an increasing interest in the Permits as follows:

• Phase 1: Apache will earn a 50% interest in 5,120 acres of the Permits after operations are conducted and by committing to Phase 2.
• Phase 2: Apache will earn a 25% interest in the Permits after operations are conducted and by committing to Phase 3.
• Phase 3: Apache will earn a 50% interest in the Permits after operations are conducted and by committing to Phase 4 operations.

Subject to certain conditions, the planned exploration work program will be conducted over the next four years. Seismic operations will start in 2011 with drilling to commence in 2012.

Apache will be the Operator for all activities undertaken pursuant to the Agreement, excluding the initial four vertical wells of the work program that TAG will operate with Apache's assistance. Apache will spend up to $100 million upon completion of Phase 3 to earn a 50% interest in the Permits. At the end of Phase 3 operations TAG will remain as operator of the Permits. If Apache commits to Phase 4 operations, all costs will then be shared equally between Apache and TAG going forward.

TAG Oil CEO, Garth Johnson, commented, "TAG Oil is excited and honored to partner with Apache in the East Coast Basin to achieve a common goal of converting the potential of the East Coast Basin to proven reserves with integrity, respect and excellence in a safe and environmentally responsible manner. We are planning an aggressive exploration program with Apache with a starting date of September 2011 to initiate seismic acquisition with drilling to begin in early 2012"

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