Under the terms of the L&M Letter Agreement, L&M will contribute $18.25 million towards the approximately $33.5 million purchase consideration agreed to under the Origin Sale and Purchase Agreement, in order to obtain a 50% interest in the TWN Joint Arrangement. L&M will also contribute 50% of all future development and operating expenditures.
The Company will become the operator of the TWN Joint Arrangement, and decisions regarding exploration, development and operations of the TWN Joint Arrangement will be made by management committees with equal representation from both the Company and L&M.
The Company will be responsible for funding the $15.25 million balance of the $33.5 million purchase consideration agreed to under the Origin Sale and Purchase Agreement. The Company has paid a $6 million acquisition deposit to Origin, leaving $9.25 million to be funded to complete the acquisition.
The concurrent completion of the acquisition and the L&M Letter Agreement is subject to the Company placing the remainder of the purchase price into an escrow account by September 30, 2013, Origin and Contact consenting to L&M becoming a party to the definitive agreements, as well as receiving the relevant government approvals.
The Taranaki Basin is situated on the west coast of the North Island and is currently New Zealand's only oil and gas producing basin, with total production of approximately 130,000 barrels of oil equivalent per day ("boe/d") from 18 fields. Within the Taranaki Basin, NZEC holds a 100% interest in the Eltham Permit, a 65% interest in the Alton Permit in joint arrangement with L&M, and a 60% interest in the Manaia Permit in joint arrangement with New Zealand Oil & Gas ("NZOG"). The Eltham Permit covers approximately 93,166 acres (377 km2) of which approximately 31,877 acres (129 km2) are offshore in shallow water. The Alton Permit covers approximately 119,204 onshore acres (482 km2). The Manaia Permit covers approximately 27,426 onshore acres (111 km2) and was granted to NZEC and NZOG in December 2012 as part of the annual New Zealand block offer for exploration permits.
NZEC also expects to acquire 50% of the three TWN Licences and to hold a 50% interest in the TWN Assets upon completion of the acquisition of assets from Origin, as outlined in Acquisition of Interest in Upstream and Midstream Assets.
At the date of this MD&A, three of the Company's four commercially producing wells are in active production. The Waitapu-2 well is currently shut in and installation of artificial lift and surface facilities is underway. During the quarter, the Company also temporarily shut-in its Copper Moki-3 well to replace the down-hole pump, which seized as a result of fines settling in the pump during commissioning of the Copper Moki surface facilities. The wells are producing light oil that is trucked to the Shell-operated Omata Tank Farm and sold at Brent pricing. Cumulatively, as of the date of this report, the Company has produced approximately 264,938 barrels of oil, with cumulative pre-tax oil sales of approximately $28.5 million, including sales from oil produced during testing (net results of operations are discussed under Results of Operations). The wells have consistently produced between 123 bbl/d and 162 bbl/d since July 1, 2013, with an average production rate of 144 bbl/d, indicating that oil production from the Copper Moki wells appears to have stabilized. Over 26 production days in August 2013, the wells have collectively produced oil at an average rate of 139 bbl/d and extracted gas at an average rate of 490 mcf/d. The Company is not yet generating cash flows from extracted gas.
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