ENP Newswire -
Release date- 02052014 -
Details of the Company's financial results are described in the Audited Consolidated Financial Statements and Management's Discussion and Analysis which, together with further details on the Company's operational activities, 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 a conference call
North American toll-free: 1-800-319-4610
Ten wells in production at year-end 2013 (2012: four wells)
77,484 barrels of oil produced and 77,820 barrels of oil sold during 2013 (2012: 162,444 and 162,077)
Total recorded revenue of
Significantly improved average field netback during second half of 2013 to
Completed acquisition of strategic midstream and exploration assets in the
Increased 2P Reserves by 145% compared to year-end 2012, with an after tax net present value (10% discount) of
Cumulative third-party revenue earned to date through
New arrangement with gas marketing counterparty is expected to commence
NZEC retracts its year-end 2014 production guidance
Message from the Chief Executive Officer
As the CEO of NZEC, I am focused on the milestones we need to achieve in the days, weeks and months ahead to ensure that our business can continue to grow. Reviewing the year-end financial statements, however, has provided the opportunity for me to reflect on the events that occurred during what was certainly a transformative year for NZEC.
NZEC started 2012 with four producing oil wells and an active exploration program on its Eltham Permit, and the expectation of imminently closing the acquisition of the TWN assets from Origin. The acquisition took much longer than expected, but the opportunities and benefits this acquisition brought to the Company far outweigh the challenges.
NZEC ended 2013 with ten producing wells, a 145% increase to its 2P reserves, and a 50% interest in strategic midstream infrastructure in the heart of the
Since closing the acquisition at the end of
I am pleased with our success and proud of the team's ability to be innovative and nimble. I tasked the team with reviewing these new assets from every angle and identifying opportunities to use the existing wells and infrastructure to increase production. The team identified numerous production opportunities in the due diligence period before NZEC closed the acquisition, and each of the development activities to date has yielded oil production.
The technical and operations teams continue to review well logs, historical drilling records and seismic data across the TWN Licenses and have identified additional opportunities to advance existing wells to production.
The Company's primary challenge, however, has been timing. Continued delays in closing the acquisition resulted in delays to realizing production and cash flow from the new assets. Likewise, the sequential development activities that NZEC had planned for the assets were also pushed back. While NZEC was initially optimistic that it could make up the time, the recent decision to defer drilling of a new Tikorangi well made it clear that the Company's year-end production guidance is no longer attainable, and the Company retracts its previously stated production guidance.
NZEC still expects to achieve that production target. NZEC has great confidence in the assets and in the production potential from the multiple drill-proven formations that underlie the Company's
For the remainder of 2014, NZEC will prioritize low-cost, low-risk opportunities that are expected to bring near-term production and cash flow. Concurrently, the Company continues to take significant steps to reduce overhead, consolidating its three New Plymouth premises into one office and eliminating a number of consulting and employment positions. NZEC's objective is to organically build up working capital through internally-generated cash flow. Once the Company has established a strong production and cash flow base, the Company can again look to advancing higher-impact operations, such as drilling new wells.
To ensure that NZEC can continue to advance its non-core assets, the Company is actively seeking farm-in partners for its Eltham and
Establishing strong partnerships has been one of the cornerstones of NZEC's success to date. The Company has established strategic partnerships with L&M Energyand Westech Energy New Zealand, and built a strong relationship with
NZEC's reputation as a responsible and entrepreneurial oil and gas developer has allowed the Company to attract industry experts. I am very excited that
I believe NZEC has both the assets and the business plan required to build a substantial oil and gas company. Progress has been slower than expected, but we are indeed making progress, and I see many opportunities ahead. We have a core team of highly qualified and experienced individuals who are focused and committed to the success of this Company. I look forward to sharing the Company's successes with our shareholders and community partners as our development plans unfold in 2014.
In the fourth quarter of 2013, NZEC completed the TWN Acquisition, assumed joint control of the acquired assets and reactivated oil production in six wells drilled by previous operators; booked additional reserves and resources related to the TWN Acquisition; closed an oversubscribed private placement for gross proceeds of
Subsequent to year-end, NZEC advanced three additional wells to production on the TWN Licenses and recommenced production from one well on the Eltham Permit. The Company has also made a number of changes to its
Initial development plans for the TWN Licenses included drilling a crestal well to access oil reserves attributed to the Tikorangi Formation. The TWN JA has determined that the crestal well will not be drilled in 2014. Drilling the Tikorangi crestal well was integral to NZEC achieving its year-end 2014 production guidance. With the Tikorangi well deferred, NZEC has made the decision to retract is year-end 2014 production guidance, as previously announced on
The Eltham Permit currently covers 47,387 acres (191.8 km2), of which approximately 2,029 acres (24.4 km2) is offshore. The Company has lodged an application with NZPAM to convert 939 acres (3.8 km2) of the Eltham Permit into a PMP. When approved, the Eltham Permit acreage will be reduced by the size of the PMP. The Alton Permit covers approximately 59,565 onshore acres (241 km2). The TWN Licenses cover approximately 23,049 onshore acres (93 km2).
NZEC is actively seeking farm-in partners for its Eltham and
Production and Processing Revenue
At the date of this MD&A, the Company had advanced 12 wells to production: four wells on the Eltham Permit and eight wells on the TWN Licenses. The Company's oil production during
Production during April 2014averaged 228 bbl/d net to NZEC. Production from
The TWN JA has identified two opportunities for low-cost, near-term production on the TWN Licenses: reactivating oil production from the Tikorangi and Mt. Messenger formations in existing wells that were produced historically, and recompleting existing wells uphole in shallower formations that have not been produced.
At the date of this MD&A, the TWN JA had advanced eight wells to production for a total of 43,594 bbl produced since closing of the TWN Acquisition (21,797 bbl net to NZEC), with cumulative pre-tax oil sales net to NZEC of approximately
Following closing of the TWN Acquisition, the TWN JA immediately proceeded with the work required to reactivate oil production from the Tikorangi Formation in six wells drilled by previous operators. On
The TWN JA continues to evaluate and optimize production from the reactivated wells. As part of the optimization process, in
A number of wells on the TWN Permits, with previous production from the Tikorangi Formation, have uphole completion potential in the shallower Mt. Messenger Formation. The TWN JA has recompleted one well uphole in the Mt. Messenger Formation (Waihapa-2) and achieved production from that well in
This successful recompletion confirms that production can be achieved from an uphole reservoir. The TWN JA has identified three more wells with uphole completion potential, and will continue to evaluate these opportunities. One additional well offers production potential from both the Tikorangi and Mt. Messenger formations. The TWN JA is focusing first on reactivating production from the Tikorangi Formation, but will proceed with an uphole completion in the Mt. Messenger Formation if appropriate.
The TWN JA continues to identify opportunities to generate revenue from the
In addition, during
To date the Company has drilled ten exploration wells on the Eltham Permit. Four have been advanced to production. At the date of this MD&A, the Company has produced approximately 279,842 bbl from its Eltham Permit wells (including oil produced during testing), with cumulative pre-tax oil sales from inception of approximately
Of the remaining six wells, one well (Copper Moki-4) made an oil discovery in the Urenui Formation and has been shut-in pending additional economic analysis and evaluation of artificial lift options.
One well (Arakamu-2) made an oil discovery in the Mt. Messenger Formation and has been shut-in pending evaluation of artificial lift options. One well (Wairere-1A) was drilled to the Mt. Messenger Formation and encountered hydrocarbon shows, with completion pending. Waitapu-1 is shut-in pending further testing or sidetrack to an alternate target and Arakamu-1A, a Moki Formation well, is suspending pending further evaluation. Only one well, Wairere-1, failed to encounter hydrocarbons and was immediately sidetracked.
All of the Eltham Permit wells produce light 41-degree API oil from the Mt. Messenger Formation. Oil is trucked to the Shell-operated Omata tank farm and sold at Brent pricing less standard Shell costs. During
Using internally generated gas for these activities, rather than purchasing it, has significantly reduced operating costs at the
In addition, NZEC holds an 80% working interest in the Wairoa Permit, which covers approximately 267,862 onshore acres (1,084 km2) south of the East Cape Permit. NZEC is the operator of all three permits.
The Company has completed the coring of two test holes and collected 35 line km of 2D seismic data on the Castlepoint Permit. The Wairoa Permit has been actively explored for many years, with extensive 2D seismic data across the permit and log data from more than 16 wells drilled on the property. Members of NZEC's geological and geophysical team understand the property well and had previously provided extensive consulting services to previous permit holders, assisting with seismic acquisition and interpretation, well-site 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. During Q1-2013 the Company completed a 50 km 2D seismic program on the Wairoa Permit.
Completing the acquisition of the TWN Licenses and TWN Assets has transformed NZEC into a fully integrated upstream/midstream company. Having a 50% interest in a full-cycle production facility and associated infrastructure should allow NZEC to optimize the development of all of its
The majority of the Company's near-term production and exploration efforts will be focused on the TWN Licenses, where existing wells offer low-cost, near-term production potential. The TWN JA has already reactivated production from seven wells and advanced one uphole completion to production. In addition, the TWN JA expects to achieve an increase to production from one well following installation of high-volume lift, and is considering installing high-volume lift in additional wells.
The TWN JA continues to review well logs, historical drilling records and seismic data across the TWN Licenses to identify additional opportunities to advance existing wells to production. The TWN JA has identified production potential from both the Tikorangi and Mt. Messenger formations in additional existing wells, and will continue to evaluate these opportunities. Reactivations and uphole completions are significantly less expensive and faster than drilling new wells, and economic discoveries can often be tied in to the
During 2014, the Company plans to drill a new exploration well on the Alton Permit. The current work program for the Alton Permit requires the Company to drill an exploration well by
In addition, new exploration targets in the Mt. Messenger, Tikorangi and Kapuni formations on the TWN Licenses and the Eltham and
The Company announced its initial development plans for the TWN Licenses and other permits in the
NZEC believes that optimization efforts can increase production from existing wells. The TWN JA is connecting the
Pumping rates are being gradually increased at the Waihapa-2 well to maximize production. The Waihapa-8 well is currently being produced using an existing gas lift system that was installed by the previous operator, but the TWN JA may consider installing more sophisticated artificial lift. In addition, the Copper Moki-3 well on the Eltham Permit is expected to resume production in Q2-2014 following installation of a new pump.
The TWN JA has identified four additional production opportunities in existing wells on the TWN Licenses: three uphole completions in the Mt. Messenger Formation and one well that offers production potential from both a Tikorangi reactivation and a Mt. Messenger uphole completion. The TWN JA will continue to evaluate these opportunities with the objective of advancing these wells to production.
NZEC remains focused on reducing costs while increasing production from existing wells with the objective of organically building up working capital through internally-generated cash flow. In addition, NZEC is actively seeking farm-in partners for its Eltham and
The Company's ability to execute its exploration and development activities is contingent on its financial capacity. Based on available working capital, as well as forecasted positive net cash flow from operations, management has estimated that the Company has sufficient working capital to meet short-term operating requirements.
However, since these estimates rely on certain development activities that are still underway as at the date of this report, there are no assurances that these activities will be successful, or that the Company will be able to attain sufficient profitable operations from those activities. In light of the reliance on successful completion of ongoing development activities, there is significant doubt about the Company's ability to continue as a going concern.
The Company is considering a number of options to increase its financial capacity (including increasing cash flow from oil production, credit facilities, joint arrangements, commercial arrangements or other financing alternatives) in order to meet all required and planned capital expenditures for the next 12 months.
The Company is actively seeking a farm-in partner for its
NZEC used information from two stratigraphic test holes and a 2D seismic survey to focus its exploration plans for the Castlepoint Permit. The current work program requires the Company to drill an exploration well by
The current work program for the Wairoa Permit requires the Company to drill an exploration well by
The Company anticipates completing fieldwork and geochemical studies on the East Cape Permit in 2014.
RESULTS OF OPERATIONS FOR THE YEAR ENDED
During the year ended
During the year ended
Total recorded revenue during the year ended
Expenses and Other Items
Production costs during the year ended
Other costs of
Depreciation costs incurred during the year ended
Stock-based compensation for the year ended
General and administrative expenses for the year ended
Transaction costs for the year ended
Net finance expense for the year ended
Foreign exchange loss for the year ended
Impairment - During the year, the Company made the decision to focus its
Total Comprehensive Loss
Total comprehensive loss for the year ended
Based on a weighted average shares outstanding balance of 127,319,719, the Company realized a
NEW STOCK OPTIONS
NZEC has issued a total of 800,000 incentive stock options to an officer and a consultant of the Company. The options expire five years from the date of grant and vest at a rate of 25% every six months for a 24-month period. The options will have an exercise price of$0.45 per share.
NZEC is an oil and natural gas company engaged in the production, development and exploration of petroleum and natural gas assets in
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
This document contains certain forward-looking information and forward-looking statements within the meaning of applicable securities legislation (collectively 'forward-looking statements'). The use of the word 'expectation', 'will', 'expect', 'continue', 'continuing', 'could', 'should', 'further', 'pending', 'anticipates', 'offers', 'intend', 'objective', 'become', 'potential', 'pursue', 'look forward', 'increasing' 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 reserves and 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 and production; the need to obtain various approvals before exploring and producing oil and natural gas resources; exploration hazards and risks inherent in oil and natural gas exploration; operating hazards and risks inherent in oil and natural gas operations; the Company's ability to generate sufficient cash flow from production to fund future development activities; 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
Such forward-looking statements should not be unduly relied upon. The Company 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. Actual results could differ materially from those anticipated in these forward-looking statements. The forward-looking statements contained in the document are expressly qualified by this cautionary statement. These statements speak only as of the date of this document and the Company does not undertake to update any forward-looking statements that are contained in this document, except in accordance with applicable securities laws.
CAUTIONARY NOTE REGARDING RESERVE ESTIMATES
The oil and gas reserves calculations and income projections were estimated in accordance with the Canadian Oil and Gas Evaluation Handbook ('COGEH') and National Instrument 51-101 ('NI 51-101'). The term barrels of oil equivalent ('boe') may be misleading, particularly if used in isolation. A boe conversion ratio of six Mcf: one bbl was used by NZEC. This 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.
Reserves are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on: the analysis of drilling, geological, geophysical, and engineering data; the use of established technology and specified economic conditions, which are generally accepted as being reasonable. Reserves are classified according to the degree of certainty associated with the estimates. Proved Reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.
Probable Reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves. Revenue projections presented are based in part on forecasts of market prices, current exchange rates, inflation, market demand and government policy which are subject to uncertainties and may in future differ materially from the forecasts above.
Present values of future net revenues do not necessarily represent the fair market value of the reserves evaluated. The report also contains forward-looking statements including expectations of future production and capital expenditures. 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. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause the actual results to differ from those anticipated.
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