NZEC believes that open communication is integral to the Company’s success. The Company’s senior management and investor relations team speaks regularly with both investor and community stakeholders. We have compiled a list of frequently asked questions below, but encourage you to ask your own question by sending an email to Ask the CEO. We will continue to build on this Q&A as the Company and its projects evolve.
You recently released an interim reserve update. How do these numbers relate to the Company's long-term potential?
Reserves are ascribed to oil discoveries that have demonstrated commercial production rates. On October 24, 2012, NZEC released an interim reserve estimate and economic evaluation that was based on reservoir and production data from the three wells that were producing at the time: Copper Moki-1, Copper Moki-2 and Copper Moki-3. We will update the reserves again to coincide with our financial year-end of December 31, and that estimate will include data from all producing wells along with any new commercial discoveries that have been made by year-end. The reserves were broken down into three categories: Proved (1P), Proved + Probable (2P), and Proved + Probable + Possible (3P). The different classifications reflect the degree of certainty associated with the estimates. It is expected that we are likely to recover more than the estimated Proved reserves, there’s a 50% chance that we’ll meet or exceed the Probable estimate, and there’s a 10% chance that we’ll exceed the Possible estimate.
Resource estimates are separate from reserves. Resource estimates for the Company's properties have been calculated using a 9% recovery rate for conventional resources and a 2% recovery rate for unconventional resources. As we advance through our exploration program and start drilling new exploration wells and hopefully making new commercial discoveries, we would expect to convert some of these resources to reserves. Resource estimates for both our Taranaki Basin and East Coast Basin properties are outlined in the Operations section of the website and in the Corporate Presentation.
What is the next step in your exploration strategy in the Taranaki Basin?
NZEC commenced an eight-well drill program in August focused on conventional opportunities in the Taranaki Basin. The Company expects to drill four wells by year-end and four wells in Q1-2013. NZEC recently completed a 100 km2 3D seismic survey over the Eltham and Alton permits. Our technical team is interpreting the data and merging it with our existing seismic data, and will use this information to identify exploration targets for our 2013 exploration program. In 2013 we plan to drill at least one well per month in the Taranaki Basin. We are also reviewing 3D seismic and well log data from the new Petroleum Licenses that we are acquiring from Origin. We have identified more than 30 leads in our target formations, along with uphole completion opportunities in six existing wells. Once the acquisition closes (targeted for Q1-2013) we will prioritize these exploration and production opportunities in the context of our current exploration program.
What is the next step in your exploration strategy in the East Coast Basin?
For 2012 our exploration focus in the East Coast Basin is technical in nature. We have drilled three stratigraphic wells to collect core from the shale packages and we recently completed a 70km 2D seismic survey, all with the objective of advancing our understanding of the Whangai and Waipawa oil shale formations. Current plans have us drilling at least one exploration well in Q1-2013. And of course we are always focused on community engagement and dialogue and continue to communicate regularly with local communities and iwi groups to discuss our exploration strategy.
How much does it cost to drill a well?
For conventional wells to the Mt. Messenger formation we budget $2 million to drill the well, $500,000 to case and $1 million to complete. A successful well, advanced all the way to production, generally costs about $3.5 million.
When will you have to go back to the markets to raise money?
We completed a $63 million financing in March 2012 that has left us fully funded to meet our current exploration and business objectives. The acquisition announced in May, whereby NZEC intends to acquire both upstream and midstream assets from Origin, will be completed using funds earmarked for acquisition and expansion, funds remaining from the August 2011 IPO, and cash flow from producing wells. We are also finalizing plans for a debt facility that will give us additional financial flexibility.
Why did you do the deal with Origin?
The acquisition announced in May, whereby NZEC will acquire the Waihapa Production Station and associated gathering and sales infrastructure as well as 26,907 acres of Petroleum Licenses, is strategic from both an exploration and infrastructure standpoint and has really set the stage for growth in all aspects of our business. Controlling a central oil and gas production facility in the Taranaki Basin provides NZEC with the strategic opportunity and capacity to independently process production, at reduced operating costs, as well as generate cash flow through third-party processing agreements. The Waihapa Production Station is central to our exploration permits in the Taranaki Basin and the existing gathering and sales pipelines will allow us to quickly bring successful discoveries onstream, at reduced costs. From an exploration perspective, NZEC will control a significant portion of the exploration fairway in the Taranaki Basin and significantly increase our drilling inventory. We believe the Petroleum Licenses are highly prospective across multiple formations, and with 16 established drill pads, many with gathering pipelines already in place, we can rapidly drill new wells and bring new production to market. In addition, well log data from 27 existing wells demonstrates that a number of wells offer uphole completion opportunities. The existing wells were drilled to the Tikorangi formation but many wells passed through our target formations: Mt. Messenger, Urenui and Moki. We believe the potential exists in six wells to plug the Tikorangi, move up the well bore and perforate in our target formations, offering production potential without the cost or time associated with drilling a new well. We believe the acquisition will add great value for our shareholders, and we look forward to closing the deal and integrating both the exploration and business opportunities into our strategic plan.
Why have you chosen to focus your exploration and development efforts in New Zealand?
We recognized an opportunity to be one of the first companies to actively explore and develop oil and natural gas prospects in a region that has tremendous potential but is surprisingly underexplored. The geology is highly prospective, we were able to move quickly to secure a number of very promising land packages and permits, and the permitting process is very transparent. It’s also very easy to do business in New Zealand. As an English-speaking country with a supportive fiscal and political regime, it was an easy transition from Canada to New Zealand. It’s also got fantastic infrastructure, and a captive market since New Zealand is currently importing oil and natural gas to fill its domestic energy needs and has a stated objective of being energy self sufficient by 2030.
Why will NZEC be more successful in finding oil and gas than previous companies were?
There has been almost no exploration in New Zealand compared to North American standards. Our Eltham permit has had two wells drilled on it. If that permit were in Canada, it would have had many times that number of wells drilled before it would be considered an “evaluated” property. We’re also approaching our exploration program with an incredible amount of information that was not available before. We’ve acquired a database with 25 years of exploration information, we’ve reprocessed older seismic data, both 2D and 3D, and with this new information we’ve been able to see features that others would have missed. On our East Coast permits, historical exploration was focused on the Miocene sand targets and overlooked the shale, because the technology to access shale targets is very new. A lot of the oil and gas seeps noted along the East Coast, in excess of 300 seeps, are believed to be sourced from the shales. So we’re really breaking new ground on the East Coast.
What gives NZEC a competitive advantage over its peers?
We’ve brought extensive North American experience and success, and North American technology, to a highly prospective and underexplored region. We’ve got a highly experienced in-country technical team with 25 years of data at their fingertips, so we’re systematically targeting and acquiring permits based on our analysis of previous exploration work. I really think we’ve got the strongest team in New Zealand, we’re nimble and entrepreneurial, and we’re moving quickly to achieve production and continue to grow the company.
What major properties has your team worked on before?
Our technical team came from Ian R Brown & Associates, the premier oil and gas consulting firm in New Zealand and they’ve worked on virtually every oil and gas property in New Zealand. Ian’s team has been compiling a database for 26 years that covers all of the publicly available exploration data in New Zealand. They’ve reprocessed it, interpreted it, and many of his people have been with him since the start. They’ve got an incredible depth of knowledge and experience. Bruce McIntyre has been involved with a number of successful oil and gas companies, right from the first drill hole and exploration success through to eventual acquisition by larger companies. He took BXL Energy from a start-up company to 2700 boe per day, all with exploration success. BXL Energy started out private, was listed on the TSX and eventually sold for $80million. Bruce’s second company was Triquest, which he grew from 300 boe to 2500 boe, and another successful acquisition.
What’s the typical development timeline of an oil and gas property?
Six months to a year is a fairly realistic timeline, from initial exploration targeting and starting the drilling process, to finding a resource and achieving production.
New Zealand often has seismic activity. Is this a risk to your properties and development plans?
The Taranaki Basin is relatively stable and away from major faults. The East Coast Basin is tectonically active, but most of the earthquakes have been relatively small, and all of our wells and infrastructure are designed to withstand earthquakes.
There has been significant public debate in New Zealand, and worldwide, about fracking. Will public concern prevent you from exploring?
We are not using fracking technology for any of the wells in our current exploration program. We are certainly watching the fracking debate closely. It's really about education. Fracking has been used around the world for decades with very few problems. We were pleased to see the New Zealand government commission an independent report about the risks and opportunities that fracking presents. It really comes down to responsible development and a commitment to meeting all environmental and safety standards. As long as the dialogue continues and people have access to accurate, unbiased information, we are confident that a balance can be achieved to allow oil and gas exploration and development to proceed in a manner that is sustainable and brings long-term net benefits to all stakeholders.
By submitting a question to Ask the CEO, you agree to have your question posted publicly on NZEC’s website. NZEC will hold your personal information in the strictest confidence and will never post your name or share your contact information. While all questions will receive a response by email or phone, NZEC will decide which questions to post and reserves the right to edit questions for both length and content.