|By Marketwired .||
|November 30, 2012 07:10 AM EST||
VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 11/30/12 -- New Zealand Energy Corp. ("NZEC" or the "Company") (TSX VENTURE:NZ)(OTCQX:NZERF) has provided an update on its exploration and production activities and released the results of its third quarter ended September 30, 2012. Details of the Company's financial results are described in the Unaudited Consolidated Financial Statements and Management's Discussion and Analysis which, together with further details on each of the Company's projects, are available on the Company's website at www.newzealandenergy.com and on SEDAR at www.sedar.com. All amounts are in Canadian dollars unless otherwise stated.
NZEC will host an investor / analyst webcast and conference call Friday, November 30 at 8am PST (10am EST) North American toll-free: 1-800-319-4610 International / Vancouver callers: 604-638-5340 Webcast: www.newzealandenergy.com
-- Fifth oil discovery in Taranaki Basin flowing 325 barrels of oil per day ("bbl/day") and 800 thousand cubic feet of natural gas per day(1) ("mcf/day") from the Mt. Messenger formation -- Optimized production from the Copper Moki wells with artificial lift - increased production by 103% to 438 bbl/day and 770 mcf/day(1), compared to production at the end of Q3-2012 -- Currently producing 1,019 boe/day(2) (736 bbl/day and 1,540 mcf/day(1)) from four wells -- 155,285 barrels of oil produced and 154,533 barrels of oil sold year to date to September 30, 2012 -- Completing 8 metres of net pay in Arakamu-2, NZEC's third well in its current eight-well program -- Drilling five additional wells with a dedicated drill rig by the end of Q1-2013 -- Third consecutive quarter with positive cash flow from operating activities -- Generated positive cash flow year to date of $11.9 million, based on average netback year to date of $77.13/bbl -- Strong balance sheet with $43.8 million in cash deposits
In 2012, NZEC has transitioned from an exploration company to an oil and gas producer with multiple operations. At the end of 2011 the Company's efforts were focused on one site and one well. At the end of 2012 NZEC will have operations ongoing at seven wells, on three separate sites. The current eight-well program is just the start of a continuous drilling program focused on increasing production and cash flow, and the Company continues to optimize production from its existing wells.
All three Copper Moki wells flowed from natural reservoir pressure until artificial lift was installed in October-November. Wells that flow from natural reservoir pressure typically experience high decline rates as the pressure immediately surrounding the well bore decreases, reducing the rate at which the formation will push oil to surface. With the installation of artificial lift, NZEC has achieved its objective of both increasing and stabilizing oil production rates. Collective production from the wells has increased 103% compared to production at the end of Q3-2012, with average production over the last seven days of 438 bbl/day and 770 mcf/day(1). Management expects the wells to stabilize at these production rates with a reduced decline rate. The majority of optimized Mt. Messenger oil wells in the Taranaki Basin have shown strong operational results, shallow declines and high reserve recovery.
The flowing Waitapu-2 well is currently producing 325 bbl/day and 800 mcf/day(1). Waitapu-2 is the Company's fourth Mt. Messenger discovery, further confirming NZEC's geological model.
NZEC continues to interpret the 100km2 3D seismic program, completed in the first half of 2012, and is further delineating prospects on 3D seismic that are comparable to the Copper Moki and Waitapu discoveries. To date NZEC has identified a large inventory of over 70 Mt. Messenger drill locations on its Eltham and Alton permits. While the Mt. Messenger formation is NZEC's primary target, given its drill-proven productivity throughout the region, NZEC's properties contain numerous prospects in the shallower Urenui formation and the deeper Moki, Tikorangi and Kapuni formations. NZEC is prioritizing these new targets in the context of both its near-term and longer-term exploration plans.
With the Company's geological model confirmed, further analysis of NZEC's 3D seismic data will continue to de-risk the Company's exploration program and extensive inventory of drill locations. NZEC is completing Arakamu-2, its third well in the current eight-well program that commenced in August 2012. The Arakamu-2 well reached target depth at a measured depth of 2,380 metres and encountered 8.1 metres of net pay in two potentially productive zones in the Mt. Messenger formation. Following completion of the Arakamu-2 well, NZEC will move the rig to spud Arakamu-1A, which is targeting the deeper Moki formation. NZEC expects to complete the remainder of the eight-well program by the end of Q1-2013 as the Company advances toward its production objective of 3,000 boe/day.
NZEC has reported three consecutive quarters with positive cash flow from operating activities and has sufficient capital to support its required exploration and development plans.
---------------------------------------------------------------------------- For the three For the three For the three For the year months ended months ended months ended ended September 30, June 30, March 31, December 31, 2012 2012 2012 2011 ---------------------------------------------------------------------------- Production 37,850 bbl(i) 55,226 bbl(i) 39,852 bbl(i) 11,623 bbl(i) Sales 38,565 bbl 58,952 bbl 34,659 bbl 9,567 bbl --------------------------------------------------------------------------- Price 100.93 $/bbl 105.28 $/bbl 117.94 $/bbl 106.83 $/bbl Production costs 32.58 $/bbl 22.14 $/bbl 22.25 $/bbl 23.44 $/bbl Royalties 4.77 $/bbl 5.02 $/bbl 5.16 $/bbl 4.96 $/bbl Field netback 63.58 $/bbl 78.12 $/bbl 90.53 $/bbl 78.43 $/bbl --------------------------------------------------------------------------- Revenue 3,708,254 5,910,993 3,908,683 974,517 Preproduction recoveries - 759,280 1,351,630 950,440 Total comprehensive (loss) income (2,018,634) 1,317,915 799,032 (6,655,829) Interest income 41,377 140,315 18,311 119,583 (Loss) earnings per share - basic (0.02) 0.01 0.00 (0.08) (Loss) earnings per share - diluted (0.02) 0.01 0.00 (0.08) Current assets 49,680,292 59,205,659 76,167,931 19,293,345 Total assets 98,882,087 98,814,102 96,979,923 31,152,804 Total liabilities 6,518,365 5,737,495 6,017,299 1,383,376 Shareholders' equity 92,363,722 93,076,607 90,962,624 29,769,428 ---------------------------------------------------------------------------- -------------------------------------------------- Summary for the nine months ended September 30, 2012 -------------------------------------------------- Production 155,285 Sales 154,533 -------------------------------------------------- Average price 107.33 $/bbl Average production costs 25.22 $/bbl Average royalties 4.98 $/bbl Average field netback 77.13 $/bbl --------------------------------------------------
(i) The abbreviation bbl means barrel or barrels of oil.
During the three-month period ended September 30, 2012, the Company produced 37,850 barrels of oil from Copper Moki-1, Copper Moki-2 and Copper Moki-3 and sold 38,565 barrels for total revenues of $3,892,223, or $100.93 per barrel. Total recorded gross production revenue was $3,708,254. Production costs during the three-month period ended September 30, 2012 totalled $1,256,361, or $32.58 per barrel. After royalties of $4.77 per barrel, NZEC generated a field netback of $63.58 per barrel during the third quarter. NZEC calculates the netback as the oil sale price less fixed and variable operating costs and a 5% royalty. The decrease in the field netback compared to previous quarters is the result of fixed costs associated with operating three producing wells in Q3 compared to two wells in Q2 and one well in Q1, a lower average realized oil price in the quarter and natural well declines. During the three-month period ended September 30, 2012, fixed operating costs represented 81% of total production costs. Subsequent to the period end, NZEC has placed all three wells on artificial lift to optimize oil production with the expectation of increasing oil production rates. Artificial lift will also reduce production costs since the wells will require significantly reduced maintenance and manpower. As a result, NZEC expects that the fixed costs associated with producing each barrel of oil will be lower in future quarters, allowing the Company to reduce operating costs at the Copper Moki site.
The aggregate volume of oil produced during the nine-month period ended September 30, 2012, including production testing of Copper Moki-2 and Copper Moki-3, was 155,285 barrels with 154,533 barrels sold, taking into consideration the opening period inventory balances, resulting in positive cash flow from operations of $12,305,716. The average field netback during the nine-month period ended September 30, 2012 was $77.13 per barrel.
At November 29, 2012, the Company had $43.9 million in cash deposits, of which US$35 million has been placed on deposit in the Company's name to satisfy the balance of the purchase price of the Origin Agreement, as summarized below in Property Review - Origin Agreement. The Company has secured a US$34.5 million operating line of credit against the US$35 million deposit and to date has drawn down US$6.5 million.
Subsequent to the period end, NZEC drilled and completed three exploration wells and announced a new oil discovery with the Waitapu-2 well, installed artificial lift on its three Copper Moki wells to optimize production rates, expanded its East Coast Basin exploration land package, increased its oil reserve estimates, and announced changes to its senior management team.
During October and November NZEC installed artificial lift (pump jacks) on its three Copper Moki wells to optimize production rates. The wells had been flowing from natural reservoir pressure since commencing commercial production, which accounts for the well declines to date. Copper Moki-3's artificial lift was installed first, followed by Copper Moki-2 and Copper Moki-1. As expected, production rates have increased with the introduction of artificial lift, achieving a 103% increase compared to production rates at the end of the third quarter. While the Company is still optimizing pumping rates on all three wells to find the optimal production rate, where extraction closely balances inflow, management believes that current production rates are close to expected final optimized rates. The wells have collectively produced an average of 438 bbl/day and 770 mcf/day(1) for the last seven days. Artificial lift should stabilize production with lower decline rates, allowing NZEC to start modelling long-term production rates and cash flow from the Copper Moki wells.
On November 26, 2012, NZEC announced its fifth oil discovery in the Taranaki Basin. The Waitapu-2 well was drilled to a total measured depth of 2,085 metres, encountering approximately 6.2 metres of net pay in the Mt. Messenger Formation, a thick sequence of turbidite sandstones in New Zealand's Taranaki Basin. At the time of the announcement the Waitapu-2 well was flowing at a rate of 325 barrels of oil per day and 800 thousand cubic feet of natural gas per day through a 24/64th inch choke. The well is producing approx. 40 degrees API oil that is being trucked to the Shell-operated Omata Tank Farm, approximately 45 km north of the site, and sold at Brent pricing. To date the Waitapu-2 well has produced 2,744 barrels of oil and will shortly be shut-in for pressure build-up.
Natural gas from the three Copper Moki wells is being delivered through NZEC's existing gas pipeline to the Waihapa Production Station. With current capability of approximately 1,500 mcf/day, NZEC's gas production does not meet the minimum threshold required to run the liquids extraction unit of the Waihapa Production Station. NZEC's gas is liquids rich and may require blending with third-party gas to reach New Zealand gas specifications.
Expanded Land Package
On October 9, NZEC announced that it had entered into a binding agreement with Westech to acquire 80% ownership and become operator of the Wairoa Permit in the East Coast Basin. In consideration for the transfer of the 80% interest, NZEC immediately assumed 100% responsibility for the permit and completion of the related work program and paid Westech US$725,000. Upon completion of the related work program, Westech will credit US$225,000 to NZEC and all future expenditures for the permit will be funded 80% by NZEC and 20% by Westech. Transfer of the 80% ownership and operatorship of the permit, formation of the joint venture, and proposed amendments to the work program are subject to approval by NZPAM.
During October, NZEC drilled and commenced completion activities on the Waitapu-1 well on its Waitapu site, and on November 26 announced results from the well. Waitapu-1 was drilled to a measured depth of 2,213 metres, then cased and completed across a gross interval of 30 metres in the Mt. Messenger formation. While a significant sand interval was identified with oil and natural gas shows, the permeability and porosity was such that the well did not immediately yield economic production. The well has been suspended pending further evaluation and/or sidetrack to an alternate target.
During November, NZEC drilled the first of two wells on its Arakamu site. The Arakamu-2 well reached target depth at a measured depth of 2,380 metres. NZEC has commenced casing the well, with completion to follow. The well encountered 8.1 metres of net pay in two potentially productive zones in the Mt. Messenger formation. The lower zone will be completed first with the second zone to follow. The Company will announce results from the Arakamu-2 well once testing has yielded enough information for the Company to estimate the well's productive potential, with testing expected to commence in late November. Following completion of the Arakamu-2 well, NZEC will move the rig to spud Arakamu-1A, which is targeting the deeper Moki formation. NZEC plans to drill Arakamu-1A using the surface casing of the existing Arakamu-1 well, drilled by a previous permit holder in 2006.
On October 24, NZEC announced an increase to its oil reserve estimates. AJM Deloitte prepared an interim reserve estimate and economic evaluation for the Company in accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities. The interim reserve estimate and economic evaluation was confined to NZEC's Eltham Permit and based on reservoir and production data from the Copper Moki-1, Copper Moki-2 and Copper Moki-3 wells, with an effective date of September 30, 2012. The evaluation resulted in a 150% increase to Proved + Probable ("2P") reserves compared to the December 2011 estimate, and a 73% increase to the 2P pre-tax net present value (10% discount). NZEC's marketable oil and gas reserves are estimated at 450,400 bbl and 625,600 bbl of 2P and 3P (Proved + Probable + Possible), respectively, or 706,400 boe(2) and 985,000 boe(2) of 2P and 3P reserves, respectively.
Marketable Oil and Gas Reserves As at September 30, 2012 Forecast Prices and Costs ---------------------------------------------------------------------------- Light & Natural Barrels Medium Natural Gas Oil Oil Gas Liquids Equivalent Reserves Category (Mbbl) (MMcf) (Mbbl) (Mboe) ---------------------------------------------------------------------------- Proved Developed Producing 203.8 493.1 32.0 318.1 Proved Undeveloped 95.8 202.8 13.2 142.7 Total Proved 299.6 695.9 45.2 460.8 Probable 150.8 409.0 26.6 245.5 Proved + Probable 450.4 1,104.9 71.8 706.4 Possible 175.2 446.3 29.0 278.6 Proved + Probable + Possible 625.6 1,551.2 100.8 985.0 ----------------------------------------------------------------------------
Notes: Mbbl - thousand barrels of oil. MMcf - million cubic feet of natural gas. Mboe - thousand barrels of oil equivalent using a conversion ratio of 6 Mcf : 1 bbl. Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. The boe conversion ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves. See Cautionary Note Regarding Reserve Estimates.
Net Present Value of Future Net Revenue Before Tax As at September 30, 2012 Forecast Prices and Costs ---------------------------------------------------------------------------- Net Present Value of Future Net Revenues Before Tax, Discounted at % per year ---------------------------------------------------------------------------- Unit Value 10% Reserves 0% 5% 8% 10% 15% 20% ($/ Category ($'000) ($'000) ($'000) ($'000) ($'000) ($'000) boe) ---------------------------------------------------------------------------- Proved Developed Producing 8,978.2 8,236.0 7,841.0 7,596.5 7,043.9 6,563.9 23.9 Proved Undevel- oped 6,378.1 6,005.0 5,795.8 5,662.3 5,349.1 5,063.7 39.7 Total Proved 15,356.3 14,241.0 13,636.8 13,258.8 12,393.0 11,627.6 28.8 Probable 10,448.2 8,789.8 7,977.6 7,499.0 6,484.5 5,677.4 30.5 Proved + Probable 25,804.6 23,030.8 21,614.4 20,757.8 18,877.5 17,305.0 29.4 Possible 12,307.5 9,550.0 8,313.7 7,621.4 6,243.1 5,233.3 27.4 Proved + Probable + Possible 38,112.1 32,580.8 29,928.1 28,379.2 25,120.6 22,538.3 28.8 ----------------------------------------------------------------------------
Senior Management Change
On November 1, NZEC announced the decision to move the Chief Financial Officer role to New Zealand to allow for closer interaction with the Company's technical and accounting teams. John Hudson, NZEC's Group Financial Controller located in New Plymouth, New Zealand, has assumed the role of interim Chief Financial Officer while the Company conducts an executive search for a New Zealand based Chief Financial Officer.
NZEC has appointed Gerrie van der Westhuizen as Vice President, Finance. Mr. Van der Westhuizen will be based in the Company's head office in Vancouver, Canada, and will oversee the Company's regulatory financial reporting and maintain the appropriate internal controls over financial reporting. In addition, Mr. Van der Westhuizen will assist the New Zealand operations team on matters related to corporate finance, treasury management, the implementation of the appropriate enterprise resource planning ("ERP") software and enhancing various business process controls. Mr. Van der Westhuizen is a Chartered Accountant, designated in Canada and South Africa, with considerable experience in the natural resource industry, having been involved with organizations producing base, precious and alternative metals and minerals. Mr. Van der Westhuizen has held progressively senior positions within public accounting and industry and garnered significant experience in statutory reporting, including executing multiple IFRS conversion projects and championing SOX404 initiatives, equity offerings and IPOs. He has also been responsible for treasury management within complex debt structures and has managed multi-jurisdictional tax compliance and the implementation of fully integrated multi-currency ERP systems.
The Taranaki Basin is situated on the west coast of the North Island and is currently New Zealand's only oil and gas producing basin, with total production of approximately 130,000 boe/day from 18 fields. Within the Taranaki Basin, NZEC holds a 100% interest in the Eltham Permit, which covers approximately 93,167 acres (377 km2) of which approximately 31,877 acres (129 km2) are offshore in shallow water, and a 50% interest in the Alton Permit in joint venture with L&M Energy Limited ("L&M"). The Alton Permit covers approximately 119,204 onshore acres (482 km2). In the first quarter of 2012, NZEC entered into a farm-in agreement with L&M pursuant to which the Company has earned an additional 15% interest in the Alton Permit, increasing the Company's interest from 50% to 65%, subject to approval of the transfer by NZPAM.
NZEC also expects to acquire four Petroleum Licenses and the Waihapa Production Station upon completion of the acquisition of assets from Origin Energy Resources NZ (TAWN) Limited, as outlined below in the Origin Agreement.
NZEC has made five oil discoveries in the Taranaki Basin. Copper Moki-1 has been producing from the Mt. Messenger formation since December 10, 2011. Copper Moki-2 has been producing from the Mt. Messenger formation since April 1, 2012. Copper Moki-3 has been producing from the Mt. Messenger formation since July 2, 2012. The wells are producing approx. 41.8 degrees API oil that is trucked to the Shell-operated Omata tank farm and sold at Brent pricing. The wells had flowed from natural reservoir pressure until October 2012, when NZEC began installing artificial lift (pump jacks) to optimize and stabilize production rates. All three wells are now producing with artificial lift and produced at an average rate of 438 bbl/day and 770 mcf/day(1) over the last seven days. The wells have collectively produced more than 193,174 barrels of oil to date.
Copper Moki-4 discovered oil in the Urenui formation, which is shallower than the Mt. Messenger formation and produces heavier oil (approx. 29 degrees API) with a higher pour point than oil produced from the Mt. Messenger formation. Copper Moki-4 is currently shut in while NZEC completes the well test analyses and economic evaluation of artificial lift systems required to make a production decision.
The Waitapu-2 well was drilled to a total measured depth of 2,085 metres, encountering approximately 6.2 metres of net pay in the Mt. Messenger formation. At November 26 the Waitapu-2 well was flowing at a rate of 325 barrels of oil per day and 800 thousand cubic feet of natural gas per day through a 24/64th inch choke. The well is producing approx. 40 degrees API oil that is being trucked to the Shell-operated Omata Tank Farm, approximately 45 km north of the site, and sold at Brent pricing. To date the Waitapu-2 well has produced 2,744 barrels of oil and will shortly be shut-in for pressure build-up.
Natural gas from the three Copper Moki wells is being delivered through NZEC's existing gas pipeline to the Waihapa Production Station. With current production of approximately 1,540 mcf/day(1), NZEC's gas production does not meet the minimum threshold required to run the liquids extraction unit of the Waihapa Production Station. NZEC's gas is liquids rich and may require blending with third-party gas to reach New Zealand gas specifications.
In the second half of 2012 NZEC has drilled three exploration wells and expects to drill a fourth by year-end, as part of its current eight-well program. Two wells targeting the Mt. Messenger formation were drilled on the Waitapu site, located approximately 1.3 km south of the Copper Moki site. The Waitapu-2 well has been advanced to production. The Waitapu-1 well encountered a significant sand interval with oil and natural gas shows; however, the permeability and porosity was such that the well did not immediately yield economic production. The well has been suspended pending further evaluation and/or sidetrack to an alternate target. One well targeting the Mt. Messenger formation has been drilled on the Arakamu site, located approximately 3.8 km southwest of Copper Moki and 2.5 km south of Waitapu. The Arakamu-2 well reached target depth in November at a measured depth of 2,380 metres and NZEC has commenced casing the well, with completion to follow. The well encountered 8.1 metres of net pay in two potentially productive zones in the Mt. Messenger formation. The lower zone will be completed first with the second zone to follow. Following completion of the Arakamu-2 well, NZEC will move the rig to spud Arakamu-1A, which is targeting the deeper Moki formation.
In May 2012, the Company entered into an agreement (the "Origin Agreement") with Origin Energy Resources NZ (TAWN) Limited, a wholly-owned subsidiary of Origin Energy Limited (collectively "Origin") to acquire upstream and midstream assets (the "Acquisition"). These assets include four Petroleum Licenses totalling 26,907 acres as well as the Waihapa Production Station and associated gathering and sales infrastructure.
Under the terms of the Origin Agreement, and pursuant to an exclusive arrangement, the Company has agreed to pay Origin consideration in the amount of $42 million in cash, payable in the US$ equivalent at a fixed C$/US$ exchange rate of 1.0349, and such other adjustments as may be required at closing. A $5 million non-refundable deposit was paid with the remainder due on closing, which is anticipated to occur in Q1-2013. Closing of the Acquisition is contingent on receiving approval from NZPAM and the New Zealand Overseas Investment office, Origin completing recommissioning of the liquids extraction unit of the Waihapa Production Station, Origin and/or NZEC entering into an agreement with Contact Energy regarding ongoing operation of Contact's Ahuroa gas storage facility, and standard TSX Venture Exchange approvals.
NZEC has made significant progress toward meeting the conditions precedent to close the acquisition. The regulatory authority has recertified the Waihapa Production Station for operation and recommissioning of the liquids extraction unit is underway. Restart and steady operation of the plant is dependent on raw gas availability. NZEC has lodged the appropriate applications with the New Zealand Overseas Investment Office, has received conditional approval from the TSX Venture Exchange, and is finalizing commercial arrangements with Contact (regarding the Ahuroa gas storage facility) and Origin.
Pursuant to the Origin Agreement, NZEC will acquire four Petroleum Licenses in the main production fairway of the Taranaki Basin, contiguous with the northern border of NZEC's Eltham and Alton permits. The Petroleum Licenses offer multi-zone potential from the Urenui, Mt. Messenger, Moki, Tikorangi and Kapuni formations. The Petroleum Licenses are permitted and renewable without relinquishment, subject to government approval. Included are 16 established drill pads, most with gathering pipelines in place, which will allow for timely tie-in to the Waihapa Production Station upon exploration and completion success.
The Acquisition includes 93 km2 of 3D seismic data with coverage over approximately 50% of the Petroleum Licenses and 585 km of 2D seismic data. NZEC has access to well log data from 27 previously drilled wells, offering additional insight into the geology of the area. NZEC believes that six of the previously drilled wells have uphole completion potential in NZEC's target formations.
NZEC's technical team continues to review the 3D seismic and well log data covering the southern half of the Petroleum Licenses and has identified 8 Urenui leads, 18 Mt. Messenger leads and 8 Moki leads, significantly expanding NZEC's drilling inventory in the Taranaki Basin. NZEC will refine and prioritize these leads within the context of its 2013 exploration program.
Production and Infrastructure Assets
The Waihapa Production Station is located approximately 3 km from NZEC's Copper Moki site and is central to NZEC's inventory of exploration prospects and is expected to reduce transportation and processing costs for NZEC's oil and gas production. As the only open-access midstream facility in the Taranaki Basin, the Waihapa Production Station, in addition to ensuring NZEC's ability to process its own production, offers business opportunities for processing third-party gas, liquids, oil and water. Origin will continue as operator of the Production Station during a transition period through to mid-2013.
The Waihapa Production Station and associated infrastructure includes:
-- a 45 mmcf/day gas processing, gas compression and liquids extraction unit; -- a 51-km 8-inch gas sales pipeline from the Waihapa Production Station to the Stratford Gas Power Generation Plant then terminating in New Plymouth; -- 59 km of oil/gas mixed product pipelines including gas lift lines; -- a 25,000 bbl/day oil processing facility; -- a 49-km oil sales pipeline from the Waihapa Production Station to the Omata Tank Farm, capable of transporting up to 15,500 bbl/day; and -- an 18,000 bbl/day water disposal processing system.
East Coast Basin
The East Coast Basin of New Zealand's North Island hosts two highly prospective oil shale formations, the Waipawa and Whangai, which are the source of more than 300 oil and gas seeps. Within the East Coast Basin, NZEC holds a 100% interest in the Castlepoint Permit, which covers approximately 551,042 onshore acres (2,230 km2), and a 100% interest in the Ranui Permit, which covers approximately 223,087 onshore acres (903 km2) and is adjacent to the Castlepoint Permit. On September 3, 2010, NZEC applied to the Minister of Energy to obtain a 100% interest in the East Cape Permit. The application is uncontested and the Company expects the East Cape Permit to be granted to NZEC upon completion of NZPAM's review of the application. The East Cape Permit covers approximately 1,067,495 onshore acres (4,320 km2) on the northeast tip of the North Island. In addition, NZEC has entered into a binding agreement with Westech to acquire 80% ownership and become operator of the Wairoa Permit, which covers approximately 267,862 onshore acres (1,084 km2) south of the East Cape Permit.
NZEC has completed the coring of two test holes on the Castlepoint Permit. The Orui (125 metres total depth) and Te Mai (195 metres total depth) collected data across the Waipawa and Whangai shales. NZEC also completed a test hole on the Ranui Permit. Ranui-2 was drilled to 1,440 metres, coring the Whangai shale across several intervals. In Q2-2012, NZEC completed 70 line kilometres of 2D seismic data across the Castlepoint and Ranui permits to further its technical understanding of the area, and is interpreting the data to finalize targets for exploration in 2013.
The Wairoa Permit has been actively explored for many years, with significant 2D seismic data across the permit and log data from more than 15 wells drilled on the property. Historical exploration focused on the conventional Miocene sands. NZEC's technical team sees conventional opportunities as well as potential in the unconventional oil shales that underlie the property. NZEC's team knows the property well and provided extensive consulting services (through the consulting company Ian R Brown Associates) to previous permit holders, assisting with seismic acquisition and interpretation, wellsite geology and regional prospectivity evaluation. In addition, NZEC's team assisted with permitting and land access agreements and worked extensively with local district council, local service providers, land owners and iwi groups, allowing the team to establish an excellent relationship with local communities.
NZEC plans to complete its current eight-well program by the end of Q1-2013 and is finalizing its exploration plans for the balance of 2013. NZEC plans to fund its exploration program and corporate activities using existing capital and cash flow from producing wells. To provide additional financial flexibility, NZEC has advanced discussions with a potential lender regarding a debt facility and signed a facility mandate letter. A facility is anticipated to be based partly on NZEC's reserves and partly on the value of the Company's assets.
With four wells in production, NZEC is focused on growing reserves, production and cash flow. NZEC is permitting a number of new drill pads to provide exploration optionality as the Company advances toward its objective of increasing production to 3,000 boe/day(2) by the end of Q1-2013.
With eight wells drilled in the Taranaki Basin to date and the log data from wells drilled on the Petroleum Licenses, NZEC has gained tremendous insight into the Moki, Mt. Messenger and Urenui formations. While the Mt. Messenger formation remains the Company's primary target, NZEC's drilling inventory includes a number of leads with Moki targets and the Company has also identified exploration targets in the deeper Tikorangi and Kapuni formations.
On its Eltham and Alton permits in the Taranaki Basin, NZEC has identified 18 prospects on 3D seismic and is continuing to refine its inventory as the technical team interprets data from the recently acquired 100 km2 3D seismic survey. Data collected across 50 km2 of the Eltham permit are being interpreted first, and have revealed sizable prospects in the Mt. Messenger, Moki, Tikorangi and Kapuni formations. One identified Moki prospect is estimated to cover an area of 1km by 2km and has become a priority drill target for NZEC's 2013 exploration campaign. Continued interpretation and modelling of the 3D seismic survey will further define existing prospects and reduce drilling risk while potentially identifying new exploration leads and expanding NZEC's inventory of drill locations for its 2013 exploration program.
In addition, new exploration leads and uphole completion opportunities on the Petroleum Licenses to be acquired from Origin would further expand NZEC's drilling inventory. NZEC's technical team is completing a thorough review of the Petroleum Licenses to further define exploration leads and uphole completion opportunities, and determine the status of existing wells, drill pads and surface facilities. Once the Acquisition is complete, these exploration opportunities will be ranked in comparison to the Company's Eltham and Alton prospects to plan future exploration programs.
Exploration in 2013 is expected to include additional wells on the Eltham and Alton permits along with potential targets on the Petroleum Licenses, subject to completion of the Acquisition as outlined in the Origin Agreement.
NZEC has lodged bids for new onshore exploration properties in the Taranaki Basin as part of the annual New Zealand Block Offer. The properties were chosen based on a prospectivity review using NZEC's 3D seismic database and synergies with NZEC's existing properties and the Waihapa Production Station. The blocks will be awarded in December following a review of the bids by NZPAM. Following the confirmation of any additional blocks awarded to the Company, NZEC's technical team will evaluate and prioritize these targets in the context of its drill program for 2013 and future years.
East Coast Basin
NZEC has drilled two stratigraphic holes on its 100% working interest Castlepoint Permit and one stratigraphic hole on its 100% working interest Ranui Permit. These three stratigraphic test wells have advanced NZEC's understanding of the Waipawa and Whangai formations. A review of the geochemical and physical properties of the two shale packages, coupled with information from existing seismic data and the newly completed 70 km 2D seismic survey, is focusing NZEC's exploration strategy for the East Coast shales.
The Company's application for the East Cape Permit is uncontested and NZEC expects the permit to be granted upon completion of NZPAM's review of the application.
The pending acquisition of an 80% interest in the Wairoa Permit, subject to NZPAM approval, will bring additional exploration opportunities to the Company. As part of the acquisition, NZEC has proposed a revised work program, which is subject to approval by NZPAM. The proposed work program requires NZEC to complete various technical studies, reinterpret existing seismic data, shoot and interpret additional 2D seismic, and drill two exploration wells by March 2016. NZEC has the option to withdraw from the joint venture after drilling the first exploration well, in which case it would transfer ownership and operatorship of the permit back to Westech. NZEC's technical team knows the property well and sees conventional opportunities as well as potential in the unconventional oil shales that underlie the property.
NZEC plans to drill one exploration well on both the Ranui and Castlepoint permits in 2013 and is finalizing drill locations. NZEC also plans to complete additional 2D seismic surveys across the East Coast permits in 2013, and will finalize its exploration plans for the Wairoa Permit after reviewing all of the seismic and well log data. Details on minimum work program requirements are outlined below in Permit Expenditure Requirements.
RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2012
During the three-month period ended September 30, 2012, the Company produced 37,850 barrels of oil and sold 38,565 barrels for total revenues of $3,892,223, or $100.93 per barrel. Total recorded gross production revenue was $3,708,254, which accounted for royalties of $183,969, or $4.77 per barrel sold. No revenues or royalties were recognized during the same period in fiscal 2011.
Expenses and Other Items
Production costs during the three-month period ended September 30, 2012 totalled $1,256,361 or $32.58 per barrel. Included in production costs are all site-related expenditures, including applicable equipment rental fees, site services, overheads and labour; transportation and storage costs including trucking, testing, tank storage, processing and handling; and port dues as incurred prior to the sale of oil. During the three-month period ended September 30, 2012, fixed operating costs represented 81% of total production costs, thus giving rise to lower field netbacks in light of the reduced oil production. However, the Company is in the process of establishing permanent facilities at several of its wells, some of which will be unmanned, which will allow the Company to reduce the level of fixed operating costs in future. No production costs were incurred during the same period in fiscal 2011.
Depreciation and accretion costs incurred during the three-month period ended September 30, 2012 totalled $777,290, or $20.16 per barrel of oil sold. Depreciation is calculated using the unit-of-production method by reference to the ratio of production in the period to the related total proved and probable reserves of oil and natural gas, taking into account estimated future development costs necessary to access those reserves. No depreciation and accretion costs were incurred during the same period in fiscal 2011.
Stock-based compensation for the three-month period ended September 30, 2012 totalled $329,981 compared to $663,997 during the same period in 2011. The non-cash charge incurred during the period related to the options granted to directors, officers and employees of the Company upon completion of the Company's initial public offering in August 2011, and subsequent grants to new employees.
General and administrative expenses for the three-month period ended September 30, 2012 totalled $1,004,070 compared to $619,690 incurred in the same period in fiscal 2011. The increase in general and administrative costs corresponds to increases in professional fees, travel and promotion expenses, as well as administrative expenses, as the Company continues to support the expanding operations of its New Zealand-based subsidiaries.
Transaction costs for the three-month period ended September 30, 2012 totalled $282,658 compared to $Nil incurred in the same period in fiscal 2011. The transaction costs incurred during the period included legal and professional fees incurred for the Origin Agreement, which are expensed as they are incurred in relation to the anticipated business combination.
Finance income for the three-month period ended September 30, 2012 totalled $41,377 compared to $27,586 in the same period in fiscal 2011. Finance income relates to interest earned on the Company's cash and cash-equivalent balances held in treasury.
Foreign exchange loss for the three-month period ended September 30, 2012 amounted to $1,085,551 compared to a $9,581 gain realized in the same period of fiscal 2011. The foreign exchange losses incurred in the current year are a result of the strengthening of the Canadian dollar against the US dollar, during a period that the Company held significant US dollar cash balances in anticipation of completion of the Origin Agreement.
Deferred income taxes for the three-month period ended September 30, 2012 amounted to $1,204,171 compared to $Nil in the same period in fiscal 2011. The deferred income taxes largely relate to a temporary difference between the accounting and tax bases of resource properties.
Total Comprehensive Loss
Total comprehensive loss for the three-month period September 30, 2012 totalled $2,018,634 after taking into account a foreign translation reserve gain of $171,817 on the translation of foreign operations and monetary items that form part of NZEC's net investment in foreign operations. This compares favourably to a total comprehensive loss for the three-month period ended September 30, 2011 of $4,279,539.
Based on a weighted average shares outstanding balance of 121,769,105 the Company realized a $0.02 basic and diluted loss per share for the three-month period ended September 30, 2012. During the three-month period ended September 30, 2011, the Company realized a $0.04 basic and diluted loss per share, based on a weighted average share balance of 90,999,480.
On behalf of the Board of Directors
John Proust, Chief Executive Officer & Director
(1) NZEC has completed a natural gas pipeline from the Copper Moki site to the Waihapa Production Station but is not yet generating cash flow from its natural gas and liquid petroleum gas production.
(2) Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
About New Zealand Energy Corp.
NZEC is an oil and natural gas company engaged in the production, development and exploration of petroleum and natural gas assets in New Zealand. NZEC's property portfolio collectively covers approximately 2.25 million acres (including pending permits) of conventional and unconventional prospects in the Taranaki Basin and East Coast Basin of New Zealand's North Island. The Company's management team has extensive experience exploring and developing oil and natural gas fields in New Zealand and Canada, and takes a multi-disciplinary approach to value creation with a track record of successful discoveries. NZEC plans to add shareholder value by executing a technically disciplined exploration and development program focused on the onshore and offshore oil and natural gas resources in the politically and fiscally stable country of New Zealand. NZEC is listed on the TSX Venture Exchange under the symbol "NZ" and on the OTCQX International under the symbol "NZERF". More information is available at www.newzealandenergy.com or by emailing [email protected].
This news release contains certain forward-looking information and forward-looking statements within the meaning of applicable securities legislation (collectively "forward-looking statements"). The use of any of the words "continues", "expects", "continues", "increase", "advances", "will" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements, including without limitation, the speculative nature of exploration, appraisal and development of oil and natural gas properties; uncertainties associated with estimating oil and natural gas resources; uncertainties in both daily and long-term production rates and resulting cash flow; volatility in market prices for oil and natural gas; changes in the cost of operations, including costs of extracting and delivering oil and natural gas to market, that affect potential profitability of oil and natural gas exploration; the need to obtain various approvals before exploring and producing oil and natural gas resources; the need to obtain government approval of work programs before exploring or developing the Petroleum Licenses; uncertainty in the timing of receipt of permits and the Company's ability to extend the permits if required; exploration hazards and risks inherent in oil and natural gas exploration; operating hazards and risks inherent in oil and natural gas operations; market conditions that prevent the Company from raising the funds necessary for exploration and development on acceptable terms or at all; global financial market events that cause significant volatility in commodity prices; unexpected costs or liabilities for environmental matters; competition for, among other things, capital, acquisitions of resources, skilled personnel, and access to equipment and services required for exploration, development and production; changes in exchange rates, laws of New Zealand or laws of Canada affecting foreign trade, taxation and investment; failure to realize the anticipated benefits of acquisitions; and other factors as disclosed in documents released by NZEC as part of its continuous disclosure obligations. Information concerning reserves may also be deemed to be forward looking as estimates imply that the reserves described can be profitably produced in the future. NZEC believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements included in this news release should not be unduly relied upon. These statements speak only as of the date of this news release and NZEC does not undertake to update any forward-looking statements that are contained in this news release, except in accordance with applicable securities laws.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as such term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
New Zealand Energy
Chief Executive Officer & Director
North American toll-free: 1-855-630-8997
New Zealand Energy
North American toll-free: 1-855-630-8997
New Zealand Energy
Vice President Communications & Investor Relations
North American toll-free: 1-855-630-8997
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