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TAG Oil completes second Cheal well as it eyes further production growth

Last updated: 11:42 14 Aug 2017 EDT, First published: 06:42 14 Aug 2017 EDT

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TAG Oil is a production firm focused on New Zealand and Australia

New Zealand and Australia-focused TAG Oil Ltd (TSE:TAO) had a busy first quarter to end June, with plenty more catalysts soon to come.

The producer reported output for the three months of 1,169 boe/d (barrels of oil equivalent per day) (77% oil) compared to  1,218 boe/d for the preceding quarter (to end March).

This was largely down to a 10 year plant inspection and recertification that took production offline for eight days in April, the oiler said.

Gas output up...

Average net daily gas production increased by 8% to 1.6 MMcf/d (million cubic feet per day) versus 1.5 MMcf/d for the previous March quarter,  because of additional gas from the Cheal-E8 well coming online in late May and additional gas at the Sidewinder project

TAG drilled the Cheal-E8 exploration well on the Cheal East permit, in which it has 70% WI (working interest), and it tested oil and gas at an average rate of 318 boe/d.

This well has now been tied-in and is on production at 75 bbl/d (barrels per day) net.

 A second exploration well (Cheal-D well) at Cheal East has been drilled and cased and testing operations are underway. Initial results are expected within the next two weeks.

Waterflood program..

Last month, TAG began water injection into the Cheal-A2 well and the current water injection rate is 600 bbl/d.  The Cheal A-Site is TAG’s third waterflood project in New Zealand and should increase production and reserves.

Looking ahead, in the fourth quarter of 2018, TAG plans to spud the Pukatea-1 exploration well (70% W.I.), which is  targeting the Tikorangi Limestone. The company is in farmout discussion for the Pukatea prospect.

Meanwhile, the group said the Cardiff-2 well continues to clean up and TAG expects to place it on production at the end of September this year.

The company said it had had $15.2mln in working capital (cash and equivalents).  Cash flow from operating activities sat at around $1.8mln for the quarter

The group spent $9.8mln on a range of capital projects, which is likely be over 50% of the group's spending for the entire year, assuming oil prices remain roughly where they are.

A very busy quarter..

"Q1 2018 has been a very busy quarter for TAG Oil. Our focus has been on execution -drilling Cheal-E8 and converting Cheal-A2 to a water injector," said Toby Pierce, TAG Oil's chief executive.

"Oil prices were 14 per cent weaker than we had forecast during the quarter; however, it appears that it may be strengthening as we progress through Q2 2018.

"In any event, we continue to closely monitor oil prices and our capital position in order to manage liquidity and capital budgets. We are prepared to trim our budgets, where appropriate, if it is required to preserve the balance sheet. Finally, farmout discussions are continuing with regards to two of our prospects - the Pukatea well and the Cardiff acreage."

Mackie repeats a 'buy'..

Broker Mackie repeated a 'buy' on the shares and targets $1.40, highlighting the firm's strong balance sheet and the potential for substantial production growth.

Shares eased 1.82% to $0.54 on the day.

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