TAG Oil: Strong Production Revenue Growth, Profitable Q2, Extensive Drilling & Testing Operations Underway

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TAG Oil Ltd. has filed its financial results with the Canadian Securities Administrators for the Company’s September 30, 2013 second quarter fiscal 2014 year. Copies of these documents can be obtained electronically at http://www.sedar.com, or for additional information please visit TAG Oil’s website at http://www.tagoil.com/. A conference call to discuss will be held on November 14 at 1 p.m. Pacific.

TAG Oil Ltd. (TSX: TAO) and (OTCQX: TAOIF), reports that the Company has filed its financial results with the Canadian Securities Administrators for the Company’s September 30, 2013 second quarter fiscal 2014 year. Copies of these documents can be obtained electronically at http://www.sedar.com, or for additional information please visit TAG Oil’s website at http://www.tagoil.com/.

TAG Oil Quarterly Highlights

  •     At September 30, 2013, the Company had cash of $61.2 million, working capital of $62.9 million and no debt prior to closing a $25 million bought deal financing.
  •     Production revenue increased to $30.58 million for six months and $15.89 million for the quarter.
  •     Net income of $7.43 million was generated for six months and $2.97 million for the quarter, before the deduction of non-cash share-based compensation.
  •     Daily average production for six months increased to 2,227 boe per day (51% oil) and 2,100 boe per day (58% oil) while realizing $113.30 per barrel of oil and $5.18 per mcf of gas for the quarter.
  •     Continued step out drilling success in the Mt. Messenger/Urenui formations with the Cheal-E1, E2 and E3 wells substantially extending the known oil-saturated area of Cheal. Production testing is underway on Cheal-E1 and with E-2 and E3 ready to test. Cheal-E4 is currently drilling ahead at approximately 750m with a projected total depth of 2234m.
  •     Cardiff-3 deep well has encountered strong mudlog shows of up to 85% total gas readings in the top sections of the Kapuni Formation. Currently drilling ahead at approximately 4,300 meters with the thickest target, the K3E zone expected at approximately 4700m.
  •     Unconventional specialists from North America join TAG to initiate a widespread East Coast Basin drilling campaign, and to establish New Zealand’s first unconventional oil and gas production directly from the source rock.

Financial and Production

Production revenue    
Q2 2014 $15,884,584                         
Q2 2013 $9,616,276                         

Net income prior to share-based compensation
Q2 2014 $2,970,435                         
Q2 2013 $1,801,250

Net income (loss)     
Q2 2014 $2,411,802                         
Q2 2013 $(301,296)

Earnings per share
Q2 2014 0.04                        
Q2 2013 (0.01)

Working capital
Q2 2014 $62,850,783                         
Q2 2013 $84,534,157

Total assets
Q2 2014 $224,932,521                         
Q2 2013 $200,621,090

Long term debt
Q2 2014 -                         
Q2 2013 -

Shareholder’s equity
Q2 2014 $198,301,759                         
Q2 2013 $184,020,105     

TAG currently has 64,870,252 common shares outstanding and 68,578,586 common shares outstanding on a fully diluted basis.

Oil and Natural Gas Production, Pricing and Revenue

Daily production volumes(1)

Oil (bbls/d)    
2014-Q2 1,209    
2013-Q1 1,075
2013-Q2 738    
Six months ended 2014 1,143
Six months ended 2013     930

Natural gas (BOE/d)    
2014-Q2 891    
2013-Q1 1,279    
2013-Q2 1,110    
Six months ended 2014 1,084    
Six months ended 2013 854

Combined (BOE/d)    
2014-Q2 2,100    
2013-Q1 2,354    
2013-Q2 1,848    
Six months ended 2014 2,227    
Six months ended 2013 1,784

Daily sales volumes(1)

Oil (bbls/d)    
2014-Q2 1,227    
2013-Q1 1,058    
2013-Q2 741    
Six months ended 2014 1,142    
Six months ended 2013 929

Natural gas (BOE/d)    
2014-Q2 782    
2013-Q1 1,115    
2013-Q2 876    
Six months ended 2014 948    
Six months ended 2013 616

Combined (BOE/d)    
2014-Q2 2,009    
2013-Q1 2,173    
2013-Q2 1,617    
Six months ended 2014 2,090    
Six months ended 2013 1,545

Natural Gas (Mmcf/d)    
2014-Q2 4,694    
2013-Q1 6,690    
2013-Q2 5,259    
Six months ended 2014 5,687    
Six months ended 2013 3,697

Product pricing                     

Oil ($/bbl)    
2014-Q2 113.30    
2013-Q1 104.87    
2013-Q2 109.97    
Six months ended 2014 109.42    
Six months ended 2013 108.41

Natural gas ($/Mcf)    
2014-Q2 5.18    
2013-Q1 5.72    
2013-Q2 4.38    
Six months ended 2014 5.50    
Six months ended 2013 4.44

Sales    

Total revenue – gross    
2014-Q2 $15,884,584    
2013-Q1 $14,698,198    
2013-Q2 $9,616,276    
Six months ended 2014 $30,582,782    
Six months ended 2013 $21,442,201

Less other revenue – gross    
2014-Q2 (861,603)    
2013-Q1 (1,120,919)
2013-Q2 ---    
Six months ended 2014 (1,982,522)
Six months ended 2013 ---

Oil and natural gas revenue – gross    
2014-Q2 15,022,981    
2013-Q1 13,577,279    
2013-Q2 9,616,276    
Six months ended 2014 28,600,260    
Six months ended 2013 21,442,201

Oil and natural gas royalties(2)    
2014-Q2 (1,632,648)    
2013-Q1 (1,473,864)    
2013-Q2 (1,077,031)    
Six months ended 2014 (3,106,512)    
Six months ended 2013 (2,406,572)

Oil and natural gas Revenue – net    
2014-Q2 $13,390,333    
2013-Q1 $12,103,415    
2013-Q2 $8,539,245    
Six months ended 2014 $25,493,748    
Six months ended 2013 $19,035,629

(1) Natural gas production converted at 6 Mcf:1BOE (for BOE figures)
(2) Includes a 7.5% royalty related to the acquisition of a 69.5% interest in the Cheal field
(3) Other revenue is electricity revenue related to OHL.
Drilling Campaign Targeting Large Conventional & Unconventional Reserves

TAG is executing the most diverse and extensive exploration endeavour and drilling campaign in the Company’s history. TAG currently has two drilling rigs operating with a third rig planned to be operating on the East Coast in the near future. The Company’s extensive acreage position, which has been high-graded over many years in the Taranaki, East Coast and Canterbury basins, with development wells, step out wells and exploration wells on-going that provides for risk-managed exploration, and continued exposure to world-class upside potential and opportunity for continued significant organic value creation for many years to come.

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.

Six month drilling plan includes:
1)    a minimum of nine conventional step out wells targeting the Urenui and Mt. Messenger Formation, across three new onshore Taranaki Basin permits near to TAG’s main Cheal discovery.
2)    a minimum of two 100%-owned (Cardiff-3 and Heatseeker-1) high-impact deep Kapuni Formation gas-condensate wells in the onshore Taranaki Basin;
3)    at least one unconventional well in TAG’s Waitangi Hill acreage in the East Coast Basin prior to an anticipated widespread unconventional drilling campaign.

Taranaki Basin Drilling Update

Urenui/Mt. Messenger Formation Wells (Shallow ~2000m)

TAG has drilled, completed and is currently testing the first three conventional step-out wells (Cheal-E1 to E3) and has spudded the Cheal-E4 well (TAG 70%). The results from these wells are particularly important as they have substantially extended Cheal’s known oil saturated area. TAG has also expanded its extensive Taranaki production infrastructure into the Cheal-E site, so that all of these wells can be immediately placed into permanent production.

To ensure more reliable production forecasting on future wells in this emerging Urenui/Mt. Messenger play, the Cheal-E site wells will be initially tested individually, with each well flowing for approximately 15 days, and then shut in temporarily to conduct pressure and temperature analysis. During this shut-in period, the next well will be placed on a 15-day production test until all new wells at the site have been individually tested and proper build-up analysis completed.

To date the Company has tested the Cheal-E1 well for 5 days with an average production rate of 600/BOE’s per day (94% oil) with a naturally flowing tubing head pressure of approximately 600 psi. The well has been restricted with a 1/4” choke until further oil storage facilities are added to the site, following greater than anticipated initial flush production rates.

Kapuni Formation Wells (Deep ~5000m)

The Cardiff-3 well, targeting the deep Eocene-aged Kapuni Formation, is drilling ahead at approximately 4,300 meters after encountering numerous hydrocarbon-bearing zones within the McKee and K1A Sands. Significantly elevated gas peaks have been recorded above background gas levels throughout the Kapuni section drilled to date.

The Company expects to drill through the remainder of the Kapuni Formation target zones —including the K3E Sands, the main objective in the Cardiff-3 well — in November and, at that time, will make a decision whether to complete and production test the well. If supported by interpreted data, initial un-stimulated testing of Cardiff-3 will commence in December for a minimum 30-day flow period. The well will then be shut in for a pressure / temperature build-up, at which time a further fracture stimulation of the well will be planned and executed, likely in Q1 of 2014.

Initial Undiscovered Resource Potential Estimated in Taranaki Drilling Program

Permit # 38156 Cardiff     
TAG Interest 100%
Resources Category Undiscovered Gas Initially-in-Place    
Low Estimate (p90)(1) 67.89 Bcf
Best Estimate (p50)(2) 159.88 Bcf
High Estimate (p10)(3) 81.57 Bcf

Permit # 38156 Cardiff     
TAG Interest 100%
Resources Category Undiscovered Condensate Initially-in-place    
Low Estimate (p90)(1) 2.04 mmbls
Best Estimate (p50)(2) 5.49 mmbls
High Estimate (p10)(3) 15.15 mmbls

Permit # 54873 Heatseeker
TAG Interest 100%
Resources Category Undiscovered Gas Initially-in-Place    
Low Estimate (p90)(1) 83.1 Bcf
Best Estimate (p50)(2) 197.3 Bcf
High Estimate (p10)(3) 468.58 Bcf

Permit # 54873 Heatseeker    
TAG Interest 100%
Resources Category Undiscovered Condensate Initially-in-place    
Low Estimate (p90)(1) 2.50 mmbls
Best Estimate (p50)(2) 7.9 mmbls
High Estimate (p10)(3) 18.75 mmbls

Permit # 38748 Hellfire
TAG Interest 100%
Resources Category Undiscovered Gas Initially-in-Place    
Low Estimate (p90)(1) 52.9 Bcf
Best Estimate (p50)(2) 119.5 Bcf
High Estimate (p10)(3) 269.72 Bcf

Permit # 38748 Hellfire    
TAG Interest 100%
Resources Category Undiscovered Condensate Initially-in-place    
Low Estimate (p90)(1) 1.59 mmbls
Best Estimate (p50)(2) 4.78 mmbls
High Estimate (p10)(3) 10.79 mmbls

Permit # 54877 Cheal North East
TAG Interest 70%
Resources Category Prospective Resources    
Low Estimate (p90)(1) 5.06 mmbls
Best Estimate (p50)(2) 11.31 mmbls
High Estimate (p10)(3) 25.41 mmbls

Permit # 54876 Cheal Southern Cross    
TAG Interest 50%
Resources Category Prospective Resources    
Low Estimate (p90)(1) 1.035 mmbls
Best Estimate (p50)(2) 2.205 mmbls
High Estimate (p10)(3) 4.60 mmbls

(1) Low Estimate is considered to be a conservative estimate of the quantity of the in-place volumes. It is likely that the actual in-place volumes will exceed the low estimate. If probabilistic methods are used, there should be at least a 90 percent probability (P90) that the in-place volumes will equal or exceed the low estimate.
(2) Best Estimate is considered to be the best estimate of the in-place volumes that will actually be present. It is equally likely that the actual in-place volumes will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50 percent probability (P50) that the in-place volumes will equal or exceed the best estimate.
(3) High Estimate is considered to be an optimistic estimate of the in-place volumes. It is unlikely that the actual in-place volumes will exceed the high estimate. If probabilistic methods are used, there should be at least a 10 percent probability (P10) that the actual in-place volumes will equal or exceed the high estimate.

Conference Call Information

TAG Oil will host a discussion of its Q2 2014 financial results and forward program on Thursday November 14, 2013 at 1:00 pm Pacific Time. Please call in ten minutes before the conference call starts and stay on the line (an operator will be available to assist you should you have questions of management during the call). In addition, questions can be forwarded by e-mail in advance to info@tagoil.com.

Interested parties may access the conference call using the information below:
Date    November 14, 2013
Time    1:00 pm Pacific Time
Toll-Free Dial-in # 1-866-318-8619
Secondary Dial-in # 1-617-399-5138

Conference Passcode 81930031

E-mail questions to: info(at)tagoil(dot)com

TAG Oil Ltd.
TAG Oil Ltd. (http://www.tagoil.com/) is a Canadian-based production and exploration company with operations focused exclusively in New Zealand. With 100% ownership over all its core assets, including extensive oil and gas production infrastructure, TAG is enjoying significant organic value creation through exploration success and ongoing development and appraisal drilling of several light oil and gas discoveries. As New Zealand's leading explorer, TAG actively drills high-impact conventional and unconventional exploration prospects identified in the Taranaki Basin, East Coast Basin and Canterbury Basin that covers more than 2,669,780 net acres of land, prospective for major discovery in New Zealand.

For further information:
Dan Brown or Garth Johnson
Phone: 1-604-682-6496
Email: info(at)tagoil(dot)com
Website: http://www.tagoil.com/
Blog: http://blog.tagoil.com/

The resource estimates in this news release were prepared with an effective date of July 31, 2013. The estimates for Cardiff have been externally prepared by Sproule International Limited and the remaining estimates were prepared internally by TAG professionals. Both Sproule and TAG professionals are qualified reserves evaluators in accordance with NI 51-101 and the Canadian Oil and Gas Evaluations Handbook.

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 6Mcf: 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.

Undiscovered Petroleum Initially-In-Place (equivalent to undiscovered resources) is that quantity of petroleum that is estimated, on a given date, to be contained in accumulations yet to be discovered. The recoverable portion of undiscovered petroleum initially in place is referred to as "prospective resources," the remainder as "unrecoverable."

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; and
  •     Oil and gas shows while drilling wells nearby.

The significant negative factors that are relevant to the resource estimate are:

  •     Tectonically complex geology could compromise seal potential; and
  •     Seismic attribute mapping in the two, deep, liquids’-rich gas plays 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 be generally, but not always, 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 the Company’s objectives, goals, production rates, optimization, infrastructure capacity and or future plans with respect to the drilling in the Taranaki and East Coast Basins are forward-looking statements under applicable securities laws and necessarily involve risks and uncertainties including, without limitation: risks associated with oil and gas exploration, development, exploitation and production, geological risks, marketing and transportation, the risk associated with estimating undiscovered original initially-in-place described above, availability of adequate funding, volatility of commodity prices, imprecision of reserve estimates, environmental risks, competition from other producers, and changes in the regulatory and taxation environment. Actual results may vary materially from the information provided in this release, and there is no representation by TAG Oil 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 NI 51-101, which can be found under TAG's SEDAR profile at http://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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