Three-month Operating Results
During the three-month period ended June 30, 2013, the Company produced 18,573 barrels of oil and sold 21,958 barrels for total oil sales of $2,216,815, with an average oil sale price of $100.96 per barrel. Total recorded production revenue, net of a 5% royalty payable to the New Zealand Government (an average of $4.88 per barrel), was $2,109,700. Production costs during the three-month period ended June 30, 2013 totalled $1,616,471, or an average of $73.62 per barrel, generating an average field netback of $22.46 per barrel during the period.
As demonstrated in Six-month Operating Results, reduced production following the shut-in of Waitapu-2 greatly impacted the three-month netback results, although this was partially offset by reduced production costs related to the Copper Moki site following the commissioning of surface facilities (see June Operating Results - Copper Moki Site Only).
June Operating Results - Copper Moki Site Only
The Company is starting to see the positive effect on production costs of installation of surface facilities as reflected in reduced production costs related to the Copper Moki site during June 2013. Following the commissioning of surface facilities on the Copper Moki site in May 2013, the Company incurred direct production costs of approximately $165,000 to produce 4,740 barrels of oil, which amounted to $34.81 per barrel during the month of June 2013, a significantly lower production cost per barrel than the quarterly average of $73.62 per barrel. This is also comparable to management's estimate of well-site production costs of NZ$40 per barrel as assumed in management's forecast of cash flows from operations referenced in the Company's August 6, 2013 press release.
Considering the proportion of fixed production costs reported for the quarter ended June 30, 2013, as well as netbacks reported in prior periods, the direct production costs per barrel is reflective of the economies of scale. Thus, further savings should arise from higher production levels from future developments.
At August 26, 2013, the Company had an estimated $4.6 million in net working capital.
ACQUISITION OF INTEREST IN UPSTREAM AND MIDSTREAM ASSETS
As previously announced, the Company has entered into an agreement with Origin Energy Resources NZ (TAWN) Limited ("Origin") to acquire three (net) petroleum mining licences in the Taranaki Basin totalling 23,049 acres (93.3 km2) - the Tariki, Waihapa and Ngaere Licences (the "TWN Licences") - as well as the Waihapa Production Station and associated gathering and sales infrastructure (the "TWN Assets"). On August 12, the Company announced that Origin had agreed to extend the deadline for satisfying the financing condition precedent for the acquisition from August 14, 2013 to September 30, 2013, and to extend the deadline for obtaining the required government approvals from September 13, 2013 to October 14, 2013. In exchange, the Company agreed to increase its acquisition deposit to $6 million.
L&M Letter Agreement to Form Joint Arrangement
On July 30, 2013, the Company announced that it had entered into a binding agreement (the "L&M Letter Agreement") with L&M Energy ("L&M") to form a 50/50 joint arrangement to explore, develop and operate the TWN Licences and the TWN Assets. Once the joint arrangement is completed, the Company and L&M will each own 50% of the TWN Licences and will also hold a 50% interest in the TWN Assets (the "TWN Joint Arrangement"). The reserves and resources estimated for the TWN Licences, as announced on June 17, 2013, will be attributable to NZEC on a 50% basis upon closing of the acquisition and the TWN Joint Arrangement, and filing of an updated reserve report.
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