Thursday, 30 May 2013

New Zealand Energy implements measures to reduce production costs, boost output

New Zealand Energy Corp. (CVE:NZ)(OTCQX:NZERF) announced Wednesday lower first quarter revenue and production year-on-year, but said it is implementing measures to reduce production costs and increase oil output by installing permanent production facilities at its Copper Moki site. 
According to the statement today, methods identified to optimize output could also include stimulation of well flow with condensate washes, modified pumping mechanisms or other forms of reservoir stimulation. 
The company said total "comprehensive income" for the three months to March 31 was $1.3 million, or a loss of 2 cents per share, compared to $0.8 million, or breakeven per share, in the year-ago period. 
Revenues declined to $2.93 million from $3.91 million in the first quarter of 2012, as production from its four wells, and prices, dropped. The company still, however, posted positive net cash flow from petroleum operations in the quarter of approximately $1.2 million.
Output of oil from its wells in the Taranaki Basin of New Zealand was 30,179 barrels in the latest period, down from 39,852 barrels a year earlier, but up from 29,516 barrels in the previous quarter. 
Realized prices also declined year-over-year to $112.35 per barrel, from $117.94 a barrel in the first quarter of 2012, but improved on the price of $103.98 per barrel in the fourth quarter of last year. 
Production costs during the most recent period totalled $1.69 million, or an average of $62.08 per barrel, generating an average field netback, calculated as the oil sale price less fixed and variable operating costs and a 5 per cent royalty, of $45.29 per barrel.
The Vancouver-based company said that while the field netback in the first quarter increased compared to the fourth quarter as a result of the higher realized oil price, field netbacks declined year-on-year on the lower oil output tied to well declines and higher fixed production costs. 
New Zealand Energy said Wednesday it has undertaken a number of reservoir and production tests in recent months with the aim of optimizing output and recovery, which have expectedly added to production costs. In the latest first quarter, fixed production costs made up roughly 89 per cent of total production costs. 
The junior oil and gas company is looking at ways to reduce these costs, associated with manpower and equipment rentals, and to boost production. It has already installed permanent facilities at its Copper Moki site in the Taranaki Basin of New Zealand, with the facilities now being commissioned. 
The company says the new quarters are expected to lower costs "considerably" in the future as the equipment is owned by New Zealand Energy and operated and maintained by its employees. 
Late in February, the junior oil and gas company announced the decision to delay further drilling to focus on the completion of its acquisition from Origin Energy as its plans are to focus in the near-term on lower-cost exploration and production opportunities that are close to infrastructure in a bid to bolster cash flow. 
Indeed, the acquisition from Origin, which is expected to close once terms of the agreement are finalized, includes the Waihapa Production Station, and associated gathering and sales infrastructure, as well as four petroleum licenses in the main Taranaki Basin production fairway. 
The company's four wells at Taranaki, consisting of 3 Copper Moki wells and the Waitapu-2 well, are producing light oil that is trucked to the Shell-operated Omata tank farm and sold at Brent pricing. 
New Zealand Energy has also completed a natural gas pipeline from the Copper Moki site to the Waihapa Production Station, and is considering laying 1.3 kilometres of natural gas pipeline to tie-in Waitapu-2 to the station, though the company is not yet generating cash flow from its natural gas production. 
The company invested around $12 million of cash in resource properties, plant and equipment in the first quarter, and had a net working capital position of about $12 million earlier this month. It says it is considering a number of options to increase its financial capacity to carry out acquisitions and other activities.  
A review is underway to evaluate the Canadian company's drilling and completion operations to date, with the aim of restarting drilling operations early in the third quarter of this year. It expects to start drilling a Mt. Messenger target well in the third quarter. The company has also begun the consent and permitting process for two exploration wells on its East Coast Basin properties.
Shares of New Zealand Energy rose by a penny in early deals Wednesday, to 41.5 cents.

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