In May 2012, NZEC announced that it had entered into an agreement with Origin Energy Resources NZ (TAWN) Limited, a wholly-owned subsidiary of Origin Energy Limited (ASX: ORG), to acquire strategic upstream and midstream assets in the Taranaki Basin. The agreement was amended a number of times, and on July 30, 2013, NZEC announced that it planned to purchase the assets in a 50/50 partnership with L&M Energy, with L&M contributing $18.25 million toward the $33.5 million purchase price. On October 28, 2013, NZEC and L&M completed the acquisition.
NZEC now owns a 50% interest in three Petroleum Mining Licenses ("TWN Licenses") totalling 23,049 acres in the main production fairway of the Taranaki Basin. NZEC also owns a 50% interest in the Waihapa Production Station, a high-capacity (45 mmcf/day, 25,000 bbl/day) full-cycle production facility that is central to NZEC's permits and includes an extensive network of gathering and sales pipelines. NZEC and L&M formed a 50/50 joint venture to explore, develop and operate the TWN Licenses and the Waihapa Production Station, with NZEC as the operator. NZEC and L&M will collectively pay Origin a 9% royalty on all future hydrocarbon production from the TWN Licenses, and can buy back up to 4% of the royalty at any time by paying Origin $4.25 million per percentage point.
In conjunction with the acquisition, NZEC booked additional reserves and resources, increasing its Proved + Probable (2P) reserves by 150%. NZEC’s 50% share of 2P Reserves attributable to the TWN Licences is estimated at 926,350 barrels of oil, 723.9 million cubic feet of natural gas and 25,350 barrels of natural gas liquids, collectively 1,072,350 barrels of oil equivalent (“boe”), with an estimated before tax net present value of $31.4 million (10% discount rate). NZEC’s share of Contingent Resources is estimated at 580,000 boe, with Prospective Resources estimated at 11,706,000 boe.
Additional information regarding the Company’s reserves and resources is available in the Company’s Form 51-101F1 Statement of Reserves Data dated April 22, 2013 and in the Company’s Interim Statement of Reserves and Resources dated October 28, 2013, both of which are filed on SEDAR at www.sedar.com.
Following completion of the acquisition, John Proust, Chief Executive Officer and Director of NZEC, commented: “This acquisition more than doubles the Company’s oil and gas reserves and expands NZEC’s presence in New Zealand from both an exploration and infrastructure perspective. The new properties offer immediate production and cash flow potential from existing wells, and significant exploration potential across multiple horizons, including the Mt. Messenger and the deeper productive Tikorangi and Kapuni formations. We will move quickly to implement our development plans for the TWN Assets and look forward to demonstrating the value of this acquisition as our exploration and development program unfolds.”
With 148,339 net acres of Petroleum Exploration Permits and 11,525 net acres of Petroleum Mining Licenses, NZEC controls a significant portion of the exploration fairway in the Taranaki Basin. The Deloitte reserve and resource estimate underscores the prospectivity of the TWN Licenses across multiple formations, with uphole completion and production potential from existing wells and the ability to rapidly drill new wells. Controlling a central oil and gas production facility in the Taranaki Basin also 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.
Upon closing of the acquisition, NZEC immediately commenced the work required to reactivate an established gas lift system for six existing wells on the TWN Licenses to recommence oil and gas production from oil and gas reserves in the Tikorangi formation. NZEC has also determined that a number of wells that previously produced from the Tikorangi formation have uphole completion potential in the shallower Mt. Messenger formation. Reactivation and uphole completion of these wells will be significantly less expensive and faster than drilling new wells, and economic discoveries will be quickly tied in to the Waihapa Production Station using existing oil and gas gathering pipelines. Both the reactivations and uphole completions could bring near-term, low-cost production and cash flow to the Company.
NZEC will continue its exploration and development of the TWN Licenses in 2014 by drilling new wells to the Tikorangi and Mt. Messenger formations.