Vancouver-based New Zealand Energy Corp. (CVE:NZ)(OTCQX:NZERF) has now reported three straight quarters with positive cash flow from operations, and says it has enough capital to support its required exploration and development plans.
This year, the company has transitioned from an explorer to an oil and gas producer, now having operations ongoing at seven wells, on three separate sites, compared to one site and one well at the end of 2011.
The junior oil and gas producer recently made its fifth oil discovery in the Taranaki Basin of New Zealand's North Island, flowing 325 barrels of oil per day (bbl/d) and 800 thousand cubic feet of natural gas per day (mcf/d) from the Mt. Messenger formation.
The Waitapu-2 well was drilled to a total measured depth of 2,085 metres, encountering roughly 6.2 metres of net pay in the Mt. Messenger Formation. So far, the well has produced 2,744 barrels of oil and will shortly be shut-in for pressure build-up.
The company's Waitapu site is just 1.3 kilometres south of Copper Moki, where it already has three producing wells. Its Copper Moki-4 is currently shut in while it completes the well test analyses and economic evaluation of artificial lift systems required to make a production decision.
It has also recently optimized production from its Copper Moki wells with artificial lift, increasing production by more than double to 438 bbl/d, and 770 mcf/d, compared to output at the end of the third quarter.
The company said it is currently producing 1,019 barrels of oil equivalent per day (boe/d) from four wells, with 155,285 barrels of oil produced and 154,533 barrels sold so far this year to the end of the latest quarter.
New Zealand Energy, with $43.8 million in cash deposits currently, is in the midst of an eight well drilling program at the Taranaki Basin, which is expected to wrap up in the first quarter of next year. Earlier this month, the company said it was drilling its third well of the program, Arakamu-2, and earlier this week said the well reached target depth at 2,380 metres. It is now completing 8 metres of net pay in the well from two potentially productive zones.
The oil and gas company said it will announce results from the Arakamu-2 well once it can estimate productive potential.
It expects to spud another well at the Arakamu site, which sits around 2.5 kilometres south of Waitapu, in December, targeting the deeper Moki Formation at around 2,700 metres, after which it will drill four more wells as part of its drilling program.
In mid-October, the company shifted its 3,000 barrels of oil equivalent per day production forecast to the first quarter of 2013, so as to coincide with the completion of its eight well drill campaign.
So far this year, New Zealand Energy has generated $11.9 million of cash flow, based on average netback of $77.13 per barrel.
In the latest three month period that ended September 30, the company produced 37,850 barrels of oil from its three Copper Moki wells, and sold 38,565 barrels for total sales of $3.89 million, or $100.93 per barrel.
Total gross production revenue was $3.71 million, compared to $5.91 million in the second quarter. Still, the company's sales are up substantially from almost a million in all of 2011, and its total comprehensive loss has narrowed from a year ago.
Production costs in the quarter were $1.26 million, or $32.58 per barrel, versus $22.14 per barrel in the previous quarter, as the company operated more wells in the latest period.
After royalties of $4.77 per barrel, the company generated a field netback of $63.58 per barrel during the third quarter. The netback is calculated as the oil sale price less fixed and variable operating costs and a 5% royalty.
The company said the decline in the field netback compared to prior quarters is the result of higher fixed costs associated with operating three producing wells, as well as a lower average realized oil price in the period, and natural well declines. In the second quarter, the company produced 55,226 barrels of oil.
Since the end of the third quarter, New Zealand Energy has placed all three Copper Moki wells on artificial lift, which it expects will increase oil production rates, and reduce operating costs since the wells required less maintenance and man power.
The company continues to interpret its 100 square kilometre 3D seismic program completed in the first half of this year, and is looking for more prospects that are comparable to the Copper Moki and Waitapu discoveries.
So far, it said it has found a large inventory of more than 70 Mt. Messenger drill locations on its Eltham and Alton permits. While Mt. Messenger is the main target, it also has prospects in the shallower Urenui formation and the deeper Moki, Tikorangi and Kapuni intervals.
It has also found new exploration leads on the four petroleum licenses to be acquired from Origin Energy Resources, as per an agreement signed back in May. The agreement also included the Waihapa Production Station, and associated gathering and sales infrastructure - which is central to the company's strategy.
The station is located around 3km from New Zealand Energy's Copper Moki site, and is expected to reduce transportation and processing costs for its oil and gas production. As the only open-access midstream facility in the Taranaki Basin, the station ensures the company can process its own production, as well as offers opportunities for processing third-party gas, liquids, oil and water.
Origin will remain operater of the station during a transition period through to mid-2013, the junior oil and gas producer said.
New Zealand Energy’s property portfolio covers nearly 2.25 million acres of prospects in the Taranaki Basin and East Coast Basin of New Zealand’s North Island.
A large chunk of its properties are located in the Taranaki Basin, which is situated on the west coast of the North Island and is currently the country's only oil and gas producing basin, producing roughly 130,000 barrels of oil per day from 18 fields.
In late October, the company announced an updated reserves estimate, resulting in a 150% increase to proved + probable (2P) reserves compared to December 2011, and a 73% rise to the proved + probable pre-tax net present value at a 10% discount rate.
Its marketable oil and gas reserves are estimated at 450,400 bbl and 625,600 bbl of 2P and 3P (proved + probable + possible), respectively, or 706,400 boe and 985,000 boe of 2P and 3P reserves, respectively.
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