Announcement
QUARTER: NZO: March 2006 Quarterly Activities Report
05:11pm
NZO
28/04/2006
QUARTER
REL: 1711 HRS New Zealand Oil and Gas Limited
QUARTER: NZO: March 2006 Quarterly Activities Report
ACTIVITIES REPORT
FOR THE QUARTER ENDED
31 MARCH 2006
HIGHLIGHTS
o Tieke, Taranui and Hector oil exploration wells to be drilled
o Debt financing completed for Tui oil fields development
o Technip appointed preferred contractor for Kupe onshore production
station
INTRODUCTION
Substantial progress was achieved with all three key NZOG development
projects and a drilling rig was contracted for three offshore exploration
wells during the March 2006 quarter. Debt financing for the Tui oil fields
development was concluded with a US$38 million facility secured with the New
Zealand branch of Commonwealth Bank of Australia ("CBA"). At Pike River,
construction works proceeded and plans advanced to appoint a lead manager for
the planned initial public offering (IPO). The Kupe development took another
step forwards with appointment of Technip as preferred contractor for the
Kupe onshore production station. The formal development decision by the Kupe
joint venture is currently scheduled for about 30 June 2006.
DEVELOPMENT PROJECTS
Tui Oil Area (PMP 38158 NZOG 12.5%)
The Tui oil field development has progressed in line with expectations during
the quarter, with a focus on the conversion of the Floating Production
Storage and Offtake ("FPSO") vessel and the contracted supply of the subsea
equipment and flow lines. Development drilling and associated exploration
drilling within the Tui permit area remains scheduled for commencement in the
October to December 2006 period.
A detailed review of the project has commenced under the new operator with a
view to optimising the project value. The results of this review should be
available in the near future.
Oil Hedging
NZOG has executed hedging arrangements over 673,000 barrels of Tui oil
production. Under those arrangements a minimum price of US$50 per barrel
will apply and a maximum of US$86 for 224,000 barrels.
Financing
NZOG has entered into a US$38 million financing agreement with CBA to fund
the company's share of the Tui development.
Tui is expected to generate a strong cash stream for NZOG once production
commences in the first half of next year, with initial flow rates from the
fields expected to be around 50,000 barrels a day (NZOG's share 6,250
barrels/day).
Pike River (MP41453) NZOG 69% (via Pike River Coal Limited)
Construction
A range of detailed design, construction and procurement activities were
completed during the March 2006 quarter at Pike River.
Construction of the 8 kilometre access road to the mine tunnel entrance has
been largely completed. Four major bridges have now been installed with the
two remaining bridges to be completed during May 2006. Final design of the
coal slurry pipeline was completed and 10 kilometres of 11 inch seamless
pipeline ordered from Japanese suppliers. Contractor bids for a
build-own-operate contract for the coal preparation plant are due during the
June 2006 quarter.
Financing
Planning is proceeding satisfactorily for the full funding of the Pike River
mine development through a mix of debt, and equity to be raised by a public
share offer.
Kupe Gas, Oil and LPG (PML38146 NZOG 15%)
The formal development decision by the Kupe joint venture is currently
scheduled for late in the first half 2006.
During the March 2006 quarter, the operator of the Kupe gas/oil development,
on behalf of the Kupe joint venture, awarded 'preferred tenderer' status to
Technip Oceania Pty Ltd for construction of the onshore gas production
station. The appointment of Technip as preferred tenderer will enable more
detailed discussions to take place as required to finalise commercial
arrangements. Based in Perth, Western Australia, and Kuala Lumpur Malaysia,
Technip Oceania provides engineering and construction management services in
the Asia Pacific region.
Meanwhile, the Kupe joint venture parties continue to evaluate bids for the
offshore components of the project. The project schedule calls for
commercial gas and liquids production to commence during 2008.
Extensive Drilling Program
NZOG announced on 22 March 2006 that it has committed to a drilling programme
utilising the Ocean Patriot offshore drilling rig. The drilling programme
will commence in the last quarter of 2006 with the Hector oil exploration
prospect in PEP 38483.
The Ocean Patriot will then drill the four production wells for the Tui oil
fields development during the period to March 2007 before moving to drill two
exploration wells, Tieke-1 and Taranui-1, in PMP 38158 in the June 2007
quarter.
The upcoming seven wells will be the largest continuous drilling programme
ever undertaken by NZOG. It represents a significant investment in the
future growth of NZOG at a time of high oil prices and solid progress with
the company's developments.
Hector Prospect (PEP38483) 19%
Hector will be drilled into the Kapuni C sands with the primary target being
clearly delineated by 3D (three dimensional) seismic. Hector is a structural
closure at the Kapuni C sand level and in a similar setting to Tui. The
Hector structure has in the order of 50 million barrels potential. If the
structure does contain oil, and is filled to "spill point" then the potential
prize could be greater than that.
Tieke and Taranui Prospects (PMP 38158) 12.5%
The Tieke and Taranui wells will be drilled into the Kapuni F sands and the
targets have been delineated on 3D seismic.
The Tieke and Taranui prospects have individual potential indicatively in the
range 10 to 20 mmbbls recoverable oil. Success at either of these
exploration targets could be monetized relatively quickly by linking
additional subsea wells by flowlines to the Tui FPSO.
The Tui oil field discoveries and the presence of oil shows in the Pukeko
well, some 70 km south of Tui, show that there is wider potential for oil
discoveries, by demonstrating that oil has been generated and expelled from
source rocks in the area west of the Maui field.
Felix and Opito Area (PEP38729) 75%
The refraction line seismic survey in the onshore region of this permit was
completed in February 2006. The results from this survey are being
incorporated into a velocity model to constrain the structure and volume of
the identified prospects and aid in the design of a transition zone seismic
survey, which is required before suitable drilling locations can be
identified. The Company is considering an acquisition of an onshore/offshore
transition zone seismic survey to tie existing marine and land seismic
datasets on the permit.
West Kupe - Taitapa and Gamma Prospects (PEP38484) 100%
The Company has submitted an application to the Ministry of Economic
Development to extend the drilling commitment date, due to lack of
availability of drilling rigs. NZOG is continuing talks with potential
partners and pursuing efforts to secure a drilling rig which continues to be
a major challenge in an overheated international drilling market. Demand for
offshore drilling rigs is anticipated to outpace supply in New Zealand for
several years.
FINANCIAL
During the March 2006 quarter, $12.6 million was invested in the Company's
development projects as follows:
Tui Oil $2.5m
Pike River Coal $9.2m
Kupe Gas/Oil $0.9m
The Company utilized its contractor guarantee facility with CBA, to replace
the US$12.5 (NZ$18) million cash deposit. Cash held of $43 million at 31
March 2006, includes cash of $23 million, held by 69% owned subsidiary Pike
River Coal Limited.
End CA:00130601 For:NZO Type:QUARTER Time:2006-04-28:17:11:38
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