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March NZ O&G Wrap

By Neil Ritchie

The New Zealand oil and gas industry continues monitoring revenues, refinements of existing and planned production and work programmes, as well as keeping an eye on the Organisation of Petroleum Exporting Countries’ aims to stabilise their own production and world oil prices.

OPEC and several non-OPEC producers agreed in January to cut production by 1.8 million barrels of oil per day (bopd) until June but that is now encouraging US petroleum producers to boost drilling activity and supplies, particularly from non-conventional shales. This in turn is threatening efforts to reduce a world oil glut, with Brent crude oil prices now hovering about the strategic $US50 per barrel level.

Meanwhile, New Zealand Oil & Gas is still hoping to attract at least one company to farm-in to its offshore Canterbury Clipper licence PEP 52717 that contains the strategic Barque Prospect, which NZOG believes could hold up to 11 trillion cubic feet (tcf) of gas and 1.5 billion barrels of oil or condensate (light oil) (best estimate, unrisked) in place across three potential producing horizons.

“This prospect alone could transform the national economy if it is successfully drilled with partners to help share drilling costs," chief executive Andrew Jefferies has said recently.

Operator NZOG and equal partner Aussie listed junior Beach Energy have until April, 2018 to commit to an exploration well in the deepwater Barque prospect about 60 kilometres off Oamaru, and then until June, 2020 to drill such a well.

NZOG’s revenue for the December 2016 half-year from ordinary activities has declined by 29 percent, from about $NZ41 million (for the December 2015 half-year) to just over $NZ29.2 million. But its after-tax loss has lessened, from almost $NZ27.6 million to just under $NZ18 million.

However, NZOG has yet to book the $NZ168 million proceeds from the sale of its 15 percent stake in the offshore Taranaki Kupe gas-condensate field to Genesis Energy, and will in May be returning $NZ100 million of capital to its shareholders - all of which will be accounted for in its June 2017 full-year report.

Its overall net loss of $NZ25.4 million was principally due to NZOG’s majority (about 51 percent) stake in Aussie listed junior Cue Energy Resources and Cue’s impairment of its five percent stake in the offshore Taranaki Maari-Mania oil field ($NZ7.7 million) and a loss ($NZ2 million) on the sale of its loss-making Pine Mills field in the US. There were also lower receipts from the offshore Tui oil field due to production declines, production outages at Kupe and Maari, and $NZ9.5 million associated with “de-recognition” of deferred tax assets related to Tui and Kupe.

Despite this mixed bag of results, Jefferies says the company is entering a “new stage of life”.

"We achieved incremental value for our legacy assets and now have a lower cost structure in the business including a reduced executive team and lower corporate rental overhead. Progress will be more obvious in our full year accounts, which will include the impact of returning capital to shareholders in May . . . and (future) growth will be achieved by deploying our remaining cash to acquire quality assets at a scale, risk-profile and price that suit our size.”

Canadian listed junior New Zealand Energy Corp is pressing ahead with its positive enhanced liquids (oil, condensate and LPG) recovery projects (with joint venture partner L& M Energy) at the onshore Taranaki Copper Moki and Waihapa-Ngaere fields.

NZEC has previously reported the successful implementation of Stage 1 of the recovery project in the Waihapa-Ngaere Tikorangi formation oil reservoir and now seeing a continuation of that initial positive oil response.

“On the basis of this we have implemented Stage 2, bringing another two wells into high rate fluid production using gas-lift,” says company chief executive Mike Adams.

“The early results from Stage-2 have been encouraging, with an increase in oil rate from these wells of approximately 50 percent.”

NZEC has now increased oil production from Waihapa-Ngaere by more than 100 percent, from approximately 70 barrels of oil equivalent per day (boepd (net) last June to approximately 145 boepd (net) in mid-February 2017.

“This has been achieved largely by expansion of our existing gas-lift and processing systems and hence has been achieved at low cost. In addition, these results provide further confirmation of the development concepts supporting the enhanced recovery project,” adds Adams.

At Copper Moki, production performance from the Copper Moki-1 and 2 (wells) remains substantially above 2015 levels. The water injection capacity of the Waitapu-2 well has been increased from approximately 500 barrels of water per day (bwpd) to approximately 1000 bwpd in order to accelerate the production benefits from the water-flood.

And injected water production has recently commenced in Copper Moki-1 and the well has a stable water-cut of less than 20 percent, with data from the waterflood being incorporated into updated reservoir analyses and models through the next quarter.

Adams says the company is also working on the discovered and prospective oil and gas volumes remaining in the Tariki mining licence PML 38138 (again with L&M Energy) as part of the agreed committed work programme. Studies to prioritise restoring production in the licence show “some encouraging opportunities and will be progressed through the balance of 2017”.

And NZEC and L&M have further increased third party processing volumes at their Waihapa production station by approximately 90 boepd as the result of an expansion of an existing agreement. NZEC will continue pursuing opportunities to increase third party usage of these facilities.

The company has also renewed its focus on further reducing operating costs and will achieve a reduction of $NZ1 million in annual operating costs once all the identified reductions have been completed.

This work includes an organisational review and the New Plymouth-based position of general manager operations, currently filled by industry veteran Mike Oakes, has been disestablished, with these responsibilities being re-allocated to existing personnel.

And fellow Canadian listed junior TAG Oil has increased the amount it hopes to raise to accelerate development activities and its planned high impact drilling programme (almost exclusively in onshore Taranaki) from $C10 million to perhaps $C15 million. This includes upcoming appraisal and development activities at the Cardiff, Cheal, Sidewinder and Sidewinder East fields, as well as the Pukatea-1 exploration well in the Puka licence PEP 51153.

It has an agreement with Mackie Research Capital Corporation and Pareto Securities, acting as co-lead agents and joint “book runners” on behalf of a syndicate of agents, to collectively aggregate gross proceeds of up to $C15 million. Closing of the offering is expected to occur this mid-March.

And TAG expects to finish the fiscal year to March 31, 2017, with production of 1250-1300 barrels of oil equivalent per day (boepd), slightly ahead of guidance, and expects to finish the 2018 fiscal year with production exceeding 2000 boepd.

Lastly, the 2017 New Zealand Petroleum Conference is due to be held in New Plymouth, the country’s energy capital, from March 21-23.