**added quotes from VP of communications and investor relations
**added information regarding the year ahead
New Zealand Energy (NZEC) (CVE:NZ) Monday said that continuous production has begun at its Copper Moki-3 well on its 100 per cent-owned Eltham permit in the Taranaki Basin of New Zealand's North Island.
The company also noted that its Copper Moki gas pipeline is complete and tied in to the Waihapa Production Station, with the operator finalizing arrangements to receive the gas.
NZEC said it expects to begin generating cash flow from its natural gas production this month.
The Waihapa Production Station will give NZEC strategic control over gathering, processing and sales infrastructure in the Taranaki Basin. The company expects to be able to quickly bring on its own near-term production additions, and also sees business opportunities for processing oil and gas from third-party producers in the region.
Construction on the gas pipeline began in April.
"Completing the gas pipeline is an important milestone since it will allow us to deliver our natural gas production to market, thereby generating additional cash flow for the company," said VP of communications and investor rellations, Rhylin Bailie.
"It will also allow us to open up the wells, since they are currently choked back to conserve the gas.
"We are expecting to sell our gas production for about $4 [per thousand cubic feet] mcf, our liquids for about $37.50 [per barrel] bbl and our condensate for about $85/bbl.
In an update on production activities, the New Zealand-focused oil and natural gas producer said that its Copper Moki-1 and Copper Moki-2 wells continue to flow from natural reservoir pressure, with a total of more than 132,000 barrels of oil produced to date.
Average production in June from Copper Moki-1 and Copper Moki-2 was approximately 688 barrels of oil equivalent per day.
NZEC said that Copper Moki-3 flowed 7,456 barrels of oil and 4,765 thousand cubic feet (mcf) of natural gas during production testing, and began continuous production on July 2.
The well is producing from natural reservoir pressure out of the Mt. Messenger formation at an average rate of 242 barrels of oil per day (bbl/d) and 135 mcf per day through a 20/64 inch choke.
NZEC stressed that natural gas and associated liquids will be flared until the well can be tied in to the company's natural gas pipeline.
"Our year-end production target is 3,000 barrels of oil equivalent (boe) per day," said Bailie.
"We expect to achieve this target from continued production at Copper Moki-1, 2 and 3, as well as from exploration success at new wells."
The company also completed production testing of Copper Moki-4, its first Urenui formation well. The well is producing 29 degrees API oil, with a higher pour point than Mt. Messenger oil, New Zealand Energy said, and with characteristics similar to Urenui oil being produced from third-party wells in the immediate area.
The well is currently shut as NZEC is evaluating artificial lift options. The company will make a production decision when the assessment is complete.
Looking ahead, Bailie said the second half of 2012 will be a busy one for NZEC as the company embarks on an eight-well drilling program in the Taranaki Basin in August; integrating both the exploration opportunities and the midstream assets into its corporate strategy, and also interpreting all of the seismic data that has been collected.
"We've recently completed a 100 kilometre-squared seismic survey in the Taranaki Basin and a 100 kilometre 2D seismic survey in the East Coast Basin.
"We will now interpret these data and merge it with our existing technical data to further define existing exploration targets and also identify new targets for our 2013 exploration program."
NZEC's property portfolio collectively covers two million acres of conventional and unconventional prospects in the Taranaki Basin and East Coast Basin of New Zealand's North Island.
At the end of May, NZEC announced the acquisition in the Taranaki Basin, including four Petroleum Mining Licenses and the Waihapa Production Station, purchased from Origin Energy's (ASX:ORG) New Zealand unit.
The company is paying C$42 million in cash and a five per cent gross overriding royalty, with the deal expected to close in October, contingent on approvals closing conditions including government approvals.
NZEC also announced its first-quarter earnings, with positive cash flow of $4.5 million generated from two producing wells.
With a cash position of $61 million, post-acquisition, NZEC said at the time that it will remain fully funded to complete its previously announced 2012 capital program, and reiterated its forecasted exit production rate of 3,000 barrels of oil equivalent per day.
NZEC has drilled five exploration wells in the Taranaki Basin, one on the Alton permit, and four from the Copper Moki pad on the Eltham permit.
The Alton permit is adjacent to Eltham and covers around 119,203 acres, with the company increasing its potential interest in the permit to 65 per cent back in February.
Continuous production from the Copper Moki-1 well, along with the 16-day flow test from the Copper Moki-2 well, generated positive cash flow of $4.5 million during the first quarter, based on a realized netback averaging approximately US$90 per barrel of oil sold.
During the period that ended March 31, the company produced 39,852 barrels and sold 34,659 barrels for total revenues of $4.1 million, or $117.94 per barrel.