New Zealand Energy Corp. (NZEC) (CVE:NZ)(OTCQX:NZERF) provided investors with an update Tuesday on its oil and gas assets in the Taranaki Basin of New Zealand's North Island, including plans for the Tariki, Waihapa and Ngaere (NYSE:TWN) petroleum licenses that are to be acquired from Origin Energy Resources, with substantially higher cash flow and production forecasts.
The $33.5 million acquisition, which includes the TWN licenses, as well as the Waihapa production station and associated infrastructure, has been underway since last year, with the company moving one step closer to closing the deal last week after entering a 50/50 split joint venture agreement with L&M Energy Limited to explore, develop and operate the assets it is about to acquire. The deal will see L&M invest $18.25 million, to be put toward the acquisition of the assets from Origin.
New Zealand Energy said Tuesday that an "extensive post TWN acquisition work program" -- on which it will spend a total of $7.3 million this year -- will be conducted once the deal closes, to be made up of reactivation and re-completion of existing wells, in addition to up to eight new wells, including four targeting deeper, high impact targets.
The acquisition, which will no doubt add to its existing production portfolio in the Taranaki Basin, will give New Zealand Energy cash flow, infrastructure and inventory to support long-term growth. The Canadian junior oil and gas play already controls 2.2 million acres of exploration permits on New Zealand's North island (including one permit pending), where it is producing oil from four wells.
Earlier this year, the company announced the decision to delay further drilling to focus on the completion of the Origin acquisition, while also undertaking a number of reservoir and production tests in recent months with the aim of optimizing output and recovery from its existing wells.
"Owning 50% of the TWN Assets will also allow NZEC to optimize development of its existing permits. The gas supply that NZEC has identified to reactivate gas lift and production on existing Tikorangi wells on the TWN Licenses will provide the blending gas required to deliver NZEC's Copper Moki gas to market, bringing additional cash flow to NZEC from the Copper Moki wells," the company said Tuesday.
The junior oil and gas play also plans to build a pipeline to connect its Waitapu-1 well to the Copper Moki gas pipeline, tying Waitapu production into the to-be-acquired Waihapa production station. "As NZEC continues to explore the Eltham and Alton permits, the company will focus on drill targets that are close to the Waihapa Production Station and associated pipelines, allowing for rapid and cost effective tie-in of both oil and gas production," it said.
The impact from the extensive work program will no doubt be seen in future production, with forecast 2014 exit production of 2,300 barrels of oil equivalent per day, said the company.
In addition to the $7.3 million spent this year, the company intends to spend a total of $24.4 million in 2014 on the work program, which will include three new Mt. Messenger wells. The completion of an independent study into Mt. Messenger discoveries has provided the compay with "valuable insight" for future exploitation, it said, such as choosing optimally sized targets based on 3D data, reducing costs by drilling multiple wells from each pad and prioritizing targets based on proximity to the Waihapa station.
New Zealand Energy has also estimated cash flow from operations of $26.1 million from the end of the third quarter (the expected Origin closing date) to 2014 finish. Immediately after the closing of the Origin deal, the company's proven and probable reserves will increase by an additional 1.07 million barrels of oil equivalent.
"Our team has worked hard to build this development program. L&M's investment is a vote of confidence in the team and in our ability to deliver on the program and build value," said CEO John Proust in the release Tuesday.
Shares picked up by one penny, to 34 cents on the TSX Venture Exchange on Tuesday.
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