New Zealand Energy Corp. (TSX VENTURE:NZ)(OTCQX:NZERF) ("NZEC" or the "Company")
is pleased to announce that it has finalized the Sale and Purchase Agreement
("SPA") to acquire strategic upstream and midstream assets (the "Acquisition")
from Origin Energy Resources NZ (TAWN) Limited, a wholly-owned subsidiary of
Origin Energy Limited (ASX:ORG) (collectively "Origin"), subject to meeting the
financing condition precedent by August 14 and the government approval condition
precedent by September 13, in order to close the Acquisition by September 20,
2013. The assets being acquired include three net Petroleum Mining Licences
totaling 23,049 acres in the main Taranaki Basin production fairway (the "TWN
Licences") as well as the Waihapa Production Station and associated gathering
and sales infrastructure. All amounts are stated in Canadian dollars unless
otherwise noted. More information regarding the Acquisition is available in the
Company's Annual Information Form for the year ended December 31, 2012, which
was filed today on SEDAR at www.sedar.com.
In conjunction with the Acquisition, NZEC commissioned Deloitte LLP ("Deloitte")
to prepare an independent assessment of reserves and resources attributable to
the TWN Licences. Proved and Probable Reserves(1) are estimated at 1,852,700
barrels of oil, 1.45 billion cubic feet of natural gas and 50,700 barrels of
natural gas liquids, collectively 2,144,700 barrels of oil equivalent(2)
("boe"), estimated by Deloitte to have a before tax net present value ("NPV") of
$62.9 million (assuming a 10% discount rate). Contingent Resources(1) are
estimated at 1,162,000 boe, with Prospective Resources(1) estimated at
23,541,000 boe. These reserves and resources will not be attributed to the
Company until the Acquisition is complete and NZEC files an updated NI 51-101
reserve report.
Highlights
-- Revised purchase price to $33.5 million with no additional adjustments
(from original purchase price in May 2012 of $42 million plus
adjustments, estimated by NZEC to be $9 million)
-- Purchase price comprises $30 million in cash plus a 9% royalty on net
revenues, both payable to Origin, and a $3.5 million cash payment to
Contact Energy Limited (NZX:CEN) ("Contact")
-- NZEC purchases the Tariki, Waihapa and Ngaere petroleum licences
totaling 23,049 acres (93.3 km2)
-- NZEC retains 100% of production from all existing and new wells on the
TWN Licences in all formations, subject to the 9% royalty payable to
Origin
-- Origin relinquishes all other rights and encumbrances on the TWN
Licences, other than the royalty
-- Reserve and resource estimate attributable to the TWN Licences, prepared
by Deloitte LLP
-- Proved and Probable Reserves(1) of 2,144,700 boe
-- Before tax NPV (10% discount) for 2P Reserves of $62.9 million(1)
-- Contingent Resources(1) (best estimate) of 1,162,000 boe
-- Prospective Resources(1) (best estimate) of 23,541,000 boe
-- Waihapa Production Station
-- Facility ready for gas processing, oil handling and water disposal
-- 10 TJ/day(3) gas supply identified to operate the gas plant and
reactivate gas lift system on Tikorangi wells
"Negotiations over the past year have resulted in a revised purchase price and a
simplified sale agreement," said John Proust, Chief Executive Officer and
Director of NZEC. "The additional time for review has ultimately proved
beneficial to NZEC and its shareholders. The extended technical review of the
TWN Licences has identified reserves that will more than quadruple NZEC's
reserve base, plus significant oil and gas resources, that together underscore
the prospectivity of the petroleum licences.
"We have developed a business plan to deliver our liquid-rich gas production to
market, activate the gas lift to recommence oil and gas production from existing
Tikorangi wells located on the TWN Licences, and establish new business
opportunities for the Waihapa Production Station.
"We appreciate the patience of our shareholders. With these negotiations behind
us, we are focused entirely on closing the acquisition and executing our
exploration and business plans to demonstrate the value of this acquisition for
NZEC's shareholders."
(1) Reserve and resource estimates for the TWN Licences prepared by Deloitte
LLP, with an effective date of April 30, 2013. See detailed reserve and resource
tables and Cautionary Note Regarding Reserve and Resource Estimates.
(2) Barrels of oil equivalent (boe) calculated using a conversion rate of 6 Mcf
: 1 bbl. May be misleading, particularly if used in isolation. The boe
conversion ratio is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead
(3) A TerraJoule (TJ) is a measure of energy and is equivalent to approximately
1 MMcf of natural gas.
Waihapa Reserves and Resources
During this period of review and renegotiation, NZEC commissioned Deloitte LLP
(formerly AJM Deloitte) to prepare a reserve estimate and economic evaluation
for the Tikorangi formation on the TWN Licences, along with a resource
evaluation for the Urenui, Mt. Messenger, Moki and Kapuni formations. The
estimates and evaluations were prepared in accordance with National Instrument
51-101 - Standards of Disclosure for Oil and Gas Activities with an effective
date of April 30, 2013. These reserves and resources will not be attributed to
the Company until the Acquisition is complete and NZEC files an updated NI
51-101 reserve report. Upon closing of the Acquisition, the Waihapa reserves and
resources will increase NZEC's 2P Reserves (Proved + Probable) by 303% and
increase the net present value (10% discount, before tax) of NZEC's 2P reserves
to $85.5 million.
Marketable Oil and Gas Reserves Attributable to the TWN Licences
As at April 30, 2013
Forecast Prices and Costs
--------------------------------------------------------------------------
Barrels Oil
Light & Medium Natural Gas Natural Gas Equivalent
Reserves Category Oil (Mbbl) (MMcf) Liquids (Mbbl) (Mboe)
--------------------------------------------------------------------------
Proved Developed 983.7 762.0 26.7 1,137.4
Proved Undeveloped 258.1 206.5 7.2 299.8
Total Proved 1,241.8 968.5 33.9 1,437.1
Probable 610.9 479.3 16.8 707.6
Proved + Probable 1,852.7 1,447.8 50.7 2,144.7
--------------------------------------------------------------------------
Notes:
1. Estimated by Deloitte LLP. These reserves will not be attributed to the
Company until the Acquisition is complete.
2. Reserves are presented before the deduction of royalty obligations
payable to Origin and to the New Zealand government.
3. Mbbl - thousand barrels. MMcf - million cubic feet. Mboe - thousand
barrels of oil equivalent using a conversion ratio of 6 Mcf : 1 bbl.
Barrels of oil equivalent (boe) may be misleading, particularly if used
in isolation. The boe conversion ratio is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead.
4. Proved Reserves are those reserves that can be estimated with a high
degree of certainty to be recoverable. It is likely that the actual
remaining quantities recovered will exceed the estimated proved
reserves. Probable Reserves are those additional reserves that are less
certain to be recovered than proved reserves. It is equally likely that
the actual remaining quantities recovered will be greater or less than
the sum of the estimated proved plus probable reserves. See Cautionary
Note Regarding Reserve and Resource Estimates.
Net Present Value of Future Net Revenue Attributable to
TWN Licences Reserves
Before Tax
As at April 30, 2013
Forecast Prices and Costs
--------------------------------------------------------------------------
Net Present Value of Future Net Revenues
Before Tax, Discounted at % per year
--------------------------------------------------------------------------
Unit
Value
0% 5% 8% 10% 15% 20% 10%
Reserves Category ($'000) ($'000) ($'000) ($'000) ($'000) ($'000) ($/boe)
--------------------------------------------------------------------------
Proved Developed 54,432 43,656 38,848 36,142 30,677 26,554 31.65
Proved Undeveloped 11,874 9,168 7,990 7,340 6,058 5,115 24.34
Total Proved 66,306 52,824 46,838 43,482 36,735 31,669 30.12
Probable 44,522 27,897 22,201 19,393 14,496 11,400 27.32
Proved + Probable 110,828 80,721 69,039 62,875 51,231 43,069 29.20
--------------------------------------------------------------------------
Oil and Gas Resources Attributable to TWN Licences
As at April 30, 2013
------------------------------------
Mboe
--------------------------------------------------------------------------
Resource Category Low Best High
--------------------------------------------------------------------------
Contingent Resources 567 1,162 2,426
--------------------------------------------------------------------------
Prospective Resources 10,825 23,541 54,368
--------------------------------------------------------------------------
Discovered Petroleum Initially in
Place (PIIP) 1,529 2,976 5,889
--------------------------------------------------------------------------
Undiscovered Petroleum Initially in
Place (PIIP) 31,145 63,955 138,781
--------------------------------------------------------------------------
Notes:
1. Estimated by Deloitte LLP. These resources will not be attributed to the
Company until the Acquisition is complete. Estimates assume 9 to 14%
recovery for oil resources and 50% for gas resources. See Cautionary
Note Regarding Reserve and Resource Estimates.
2. Mboe - thousand barrels of oil equivalent using a conversion ratio of 6
Mcf : 1 bbl. Barrels of oil equivalent (boe) may be misleading,
particularly if used in isolation. The boe conversion ratio is based on
an energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the wellhead.
Terms of the Acquisition
The final purchase price for the Acquisition comprises $33.5 million in cash
($30 million payable to Origin and $3.5 million payable to Contact). NZEC paid a
$5 million deposit to Origin for the Acquisition in June 2012. The remaining
$28.5 million will be payable upon closing of the Acquisition. The Company is
considering a number of options to increase its financial capacity to carry out
the Acquisition and other anticipated activities. In addition, NZEC will pay
Origin a 9% net revenue royalty. The Company can reduce the Origin Royalty at
any time by as much as 4% by paying Origin $4.25 million per percentage point.
The TWN Licences are also subject to a "grandfathered" New Zealand Petroleum &
Minerals 10% net revenue royalty. The royalty regime allows for the deduction of
specified portions of operating costs when calculating royalties payable.
Other than the 9% royalty, Origin has relinquished all rights to the TWN
Licences and the Waihapa Production Station, and to production from existing and
future wells in all formations.
As one of the conditions of the transaction, NZEC has entered into an agreement
with Contact regarding Contact's Ahuroa Gas Storage Facility ("AGS") located in
the Contact-owned permit adjacent to the TWN Licences and the Waihapa Production
Station. Contact, owned 53.1% by Origin, is one of New Zealand's leading energy
generators and retailers, providing electricity, natural gas and LPG to
customers in New Zealand. NZEC will transfer ownership of the Ahuroa Licence
(3,857 acres, 15.6 km2) to Contact upon closing of the transaction. NZEC's
technical review of the Ahuroa Licence did not identify significant accessible
prospectivity. In exchange for transfer of the Ahuroa Licence to Contact, NZEC
will receive a compressor capable of handling 10 MMcf/d of natural gas. NZEC
will act as operator of AGS, for which Contact will pay NZEC a monthly operating
fee of NZ$200,000.
Two final conditions are required to close the Acquisition: deposit of the
remaining $28.5 million of the purchase price into an escrow account, and
government approval. The New Zealand Government has voiced its approval for the
transaction. NZEC will proceed to lodge the SPA and other agreements with the
New Zealand Government for final approval. The TSX Venture Exchange has provided
conditional approval for the transaction.
TWN Mining Licences
Upon closing of the Acquisition and after transferring the Ahuroa Permit to
Contact, NZEC will own the Tariki, Waihapa and Ngaere Licences ("TWN Licences")
in the main production fairway of the Taranaki Basin, contiguous with the
northern border of NZEC's existing Eltham and Alton permits (Figure 1).
Totalling 23,049 acres (93.3 km2), the TWN Licences offer multi-zone potential
from the Urenui, Mt. Messenger, Moki, Kapuni and Tikorangi formations and will
bring NZEC's Taranaki Basin acreage to 210,153 acres (850.5 km2). The TWN
Licences are permitted and renewable without relinquishment, subject to
government approval. Included are 16 established drill pads with gathering
systems in place, which will allow for timely tie-in to the Waihapa Production
Station upon exploration and completion success.
The Acquisition includes 3D seismic data covering approximately 50% of the TWN
Licences as well as 585 km of 2D seismic data. NZEC has access to extensive
information from 27 previously drilled wells, offering the necessary well
control to expedite exploration cycle time and reduce drilling risk. NZEC's
review to date of the 3D seismic and well log data has identified exploration
leads in all of the formations, significantly expanding NZEC's drilling
inventory in the Taranaki Basin.
Upon closing of the Acquisition, NZEC plans to reactivate an established gas
lift system for six existing wells on the TWN Licences to recommence oil and gas
production from the Tikorangi formation, which is estimated to have remaining
Proved and Probable Reserves of 2,144,700 boe. NZEC has also determined that six
wells that previously produced from the Tikorangi formation have uphole
completion potential in the shallower Moki, Mt. Messenger and Urenui formations.
Reactivation and uphole completion of these wells would be significantly less
expensive and faster than drilling new wells, and economic discoveries could be
quickly tied in to the Waihapa Production Station using existing oil and gas
gathering pipelines. Both the reactivations and uphole completions could bring
near-term, low-cost production and cash flow to the Company.
NZEC's technical team has also identified five high-priority Mt. Messenger
targets on the Waihapa and Ngaere permits of the TWN Licences. NZEC has
completed permitting for a new site to access these targets, called the Waipapa
site.
Longer-term exploration plans on the TWN Licences include accessing Mt.
Messenger targets from 16 existing drill pads with gathering systems in place,
which offer lower-cost exploration potential and can be tied-in to the Waihapa
Production Station on an expedited basis. The resource evaluation also confirmed
the prospectivity of the deeper Moki and Kapuni formations on the TWN Licences.
Discoveries by other companies on offsetting permits have demonstrated
significant flow rates and long-term production from reservoirs in these deeper
formations.
Production and Infrastructure Assets
Owning the Waihapa Production Station (Figure 2) will give NZEC strategic
control over gathering, processing and sales infrastructure in the Taranaki
Basin and provide NZEC with the ability to quickly bring on near-term production
additions, reduce full-cycle development lead times and execute on longer-term
growth plans. In addition, as the only open-access midstream facility in the
Taranaki Basin, the Waihapa Production Station offers business opportunities for
processing third-party gas, liquids, oil and water. The Waihapa Production
Station is central to NZEC's producing wells and inventory of exploration
prospects, thereby reducing transportation and processing costs for NZEC's oil
and gas production.
The Waihapa Production Station and associated infrastructure includes:
-- 45 MMcf/d gas processing, gas compression and LPG extraction facility;
-- 51 km 8-inch gas sales pipeline from the Waihapa Production Station to
the Stratford Gas Power Generation Plant then terminating in New
Plymouth;
-- 59 km of oil/gas mixed product pipelines including gas lift lines;
-- 25,000 bbl/d oil processing facility;
-- 49 km oil sales pipeline from the Waihapa Production Station to the
Omata Tank Farm, capable of transporting up to 15,500 bbl/d; and
-- 18,000 bbl/d water disposal processing system.
Since initiating the Acquisition in 2012, NZEC has recruited industry
professionals with expertise in operating a full-cycle production facility. When
the Acquisition closes, Mike Oakes, NZEC's General Manager Upstream Operations,
will assume responsibility for the Waihapa Production Station.
Contact Agreement
As part of the Acquisition, Contact and NZEC have agreed to undertake a joint
study that is expected to lead to the commencement of a six-month gas looping
trial in Q4-2013. NZEC intends to loop a minimum of 10 TJ/day3 through the
Waihapa Production Station, shipped from the existing gas network through the
Contact pipeline. A volume of 10 TJ/day will be adequate to commence operations
at the Waihapa Production Station, allowing NZEC to process gas produced from
its own wells. During the trial, gas will be used to reactivate the existing gas
lift system on the TWN Licences to lift oil and gas from reserves in the
Tikorangi formation. The trial will also determine the economics of stripping
natural gas liquids ("NGLs") from the liquids-rich gas. Any NGLs that are
recovered during the trial will be the property of NZEC and can be sold at
market prices. NZEC will sell any additional gas produced through this process
to Contact at an estimated price of NZ$4.75/mcf.
On behalf of the Board of Directors
John Proust, Chief Executive Officer & Director
About New Zealand Energy Corp.
NZEC is an oil and natural gas company engaged in the production, development
and exploration of petroleum and natural gas assets in New Zealand. NZEC's
property portfolio collectively covers approximately 2.27 million acres
(including permits and acquisitions pending) of conventional and unconventional
prospects in the Taranaki Basin and East Coast Basin of New Zealand's North
Island. The Company's management team has extensive experience exploring and
developing oil and natural gas fields in New Zealand and Canada. NZEC plans to
add shareholder value by executing a technically disciplined exploration and
development program focused on the onshore and offshore oil and natural gas
resources in the politically and fiscally stable country of New Zealand. NZEC is
listed on the TSX Venture Exchange under the symbol "NZ" and on the OTCQX
International under the symbol "NZERF". More information is available at
www.newzealandenergy.com or by emailing info@newzealandenergy.com.
To view Figures 1 and 2 please click on the following link:
http://file.marketwire.com/release/NZ0617.pdf
FORWARD-LOOKING INFORMATION
This document contains certain forward-looking information and forward-looking
statements within the meaning of applicable securities legislation (collectively
"forward-looking statements"). The use of any of the words "being", "will",
"until", "estimate", "will be", "is considering", "will proceed", "plans",
"reactivate", "recommence", "would be", "could be", "will bring", "could bring",
"expected", and similar expressions are intended to identify forward-looking
statements. These statements involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ materially from
those anticipated in such forward-looking statements. Such forward-looking
statements should not be unduly relied upon. The Company believes the
expectations reflected in those forward-looking statements are reasonable, but
no assurance can be given that these expectations will prove to be correct. This
document contains forward-looking statements and assumptions pertaining to the
following: business strategy, strength and focus; the granting of regulatory
approvals; the timing for receipt of regulatory approvals; geological and
engineering estimates relating to the resource potential of the Properties; the
estimated quantity and quality of the Company's oil and natural gas resources;
supply and demand for oil and natural gas and the Company's ability to market
crude oil, natural gas and; expectations regarding the ability to raise capital
and to continually add to reserves and resources through acquisitions and
development; the Company's ability to obtain qualified staff and equipment in a
timely and cost-efficient manner; the ability of the Company to obtain the
necessary approvals and secure the necessary financing to conclude the
acquisition of assets from Origin on schedule, or at all;
the ability of the Company's subsidiaries to obtain mining permits and access
rights in respect of land and resource and environmental consents; the
recoverability of the Company's crude oil, natural gas reserves and resources;
and future capital expenditures to be made by the Company. Actual results could
differ materially from those anticipated in these forward-looking statements as
a result of the risk factors set forth below and elsewhere in the document, such
as the speculative nature of exploration, appraisal and development of oil and
natural gas properties; uncertainties associated with estimating oil and natural
gas resources; changes in the cost of operations, including costs of extracting
and delivering oil and natural gas to market, that affect potential
profitability of oil and natural gas exploration; operating hazards and risks
inherent in oil and natural gas operations; volatility in market prices for oil
and natural gas; market conditions that prevent the Company from raising the
funds necessary for exploration and development on acceptable terms or at all;
global financial market events that cause significant volatility in commodity
prices; unexpected costs or liabilities for environmental matters; competition
for, among other things, capital, acquisitions of resources, skilled personnel,
and access to equipment and services required for exploration, development and
production; changes in exchange rates, laws of New Zealand or laws of Canada
affecting foreign trade, taxation and investment; failure to realize the
anticipated benefits of acquisitions; and other factors. Readers are cautioned
that the foregoing list of factors is not exhaustive. Statements relating to
"reserves and resources" are deemed to be forward-looking statements, as they
involve the implied assessment, based on certain estimates and assumptions, that
the resources described can be profitably produced in the future. The
forward-looking statements contained in the document are expressly qualified by
this cautionary statement. These statements speak only as of the date of this
document and the Company does not undertake to update any forward-looking
statements that are contained in this document, except in accordance with
applicable securities laws.
CAUTIONARY NOTE REGARDING RESERVE AND RESOURCE ESTIMATES
The oil and gas reserve and resource calculations and net present value
projections were estimated in accordance with the Canadian Oil and Gas
Evaluation Handbook ("COGEH") and National Instrument 51-101 ("NI 51-101"). The
term barrels of oil equivalent ("boe") may be misleading, particularly if used
in isolation. A boe conversion ratio of six Mcf: one bbl was used by NZEC. This
conversion ratio is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead. Reserves are estimated remaining quantities of oil and natural gas and
related substances anticipated to be recoverable from known accumulations, as of
a given date, based on: the analysis of drilling, geological, geophysical, and
engineering data; the use of established technology; and specified economic
conditions, which are generally accepted as being reasonable. Reserves are
classified according to the degree of certainty associated with the estimates.
Proved Reserves are those reserves that can be estimated with a high degree of
certainty to be recoverable. It is likely that the actual remaining quantities
recovered will exceed the estimated proved reserves. Probable Reserves are those
additional reserves that are less certain to be recovered than proved reserves.
It is equally likely that the actual remaining quantities recovered will be
greater or less than the sum of the estimated proved plus probable reserves.
Possible Reserves are those additional reserves that are less certain to be
recovered than probable reserves. There is a 10% probability that the actual
remaining quantities recovered will exceed the sum of the estimated proved plus
probable plus possible reserves. Revenue projections presented are based in part
on forecasts of market prices, current exchange rates, inflation, market demand
and government policy which are subject to uncertainties and may in future
differ materially from the forecasts above. Present values of future net
revenues do not necessarily represent the fair market value of the reserves
evaluated. Information concerning reserves may also be deemed to be forward
looking as estimates imply that the reserves described can be profitably
produced in the future. These statements are based on current expectations that
involve a number of risks and uncertainties, which could cause the actual
results to differ from those anticipated. Contingent resources are those
quantities of oil and gas estimated on a given date to be potentially
recoverable from known accumulations using established technology or technology
under development, but which are not currently considered to be commercially
recoverable due to one or more contingencies. Contingencies may include factors
such as economic, legal, environmental, political and regulatory matters, or a
lack of markets. Prospective resources are those quantities of oil and gas
estimated on a given date to be potentially recoverable from undiscovered
accumulations. Undiscovered resources means those quantities of oil and gas
estimated on a given date to be contained in accumulations yet to be discovered.
The resources reported are estimates only and there is no certainty that any
portion of the reported resources will be discovered and that, if discovered, it
will be economically viable or technically feasible to produce.
FOR FURTHER INFORMATION PLEASE CONTACT:
New Zealand Energy Corp.
John Proust
Chief Executive Officer & Director
North American Toll-Free: 1-855-630-8997
New Zealand Energy Corp.
Bruce McIntyre
Executive Director
North American Toll-Free: 1-855-630-8997
New Zealand Energy Corp.
Rhylin Bailie
Vice President Communications & Investor Relations
North American Toll-Free: 1-855-630-8997
New Zealand Energy Corp.
Chris Bush
New Zealand Country Manager
New Zealand: 64-6-757-4470
info@newzealandenergy.com
www.newzealandenergy.com
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