TAG Oil provides update

Independent Canadian oil and gas production and exploration company TAG Oil Ltd. has signed a letter of intent with New Zealand based Genesis Energy to sell its 15.1% interest in PEP 38738-D and PMP 38156-D containing the Cardiff deep gas prospect for a combination of cash and a 1% royalty on any future production from both permits. The LOI is conditional to a formal agreement being signed as well as consents required under the joint venture operating agreement and the Ministry of Economic Development in New Zealand.

In addition, TAG’s primary asset, a 30.5% interest in the Cheal oil field, is currently producing at approximately 400 barrels of oil per day gross (TAG net: 122 barrels) as a result of Cheal B production being temporarily shut-down as part of the planned final construction process of the permanent B site facilities. This construction is anticipated to be completed by mid to late December and is expected to increase Cheal production to approximately 700 barrels of oil per day gross (TAG net: 214 barrels) as well as significantly reducing production costs at the Cheal B site. In addition the Cheal A4 well, one of the field’s better producers, is currently producing at a reduced daily rate of approximately 140 barrels of oil per day as a result of a casing leakage that has occurred in the well. The joint venture is presently taking steps to resolve this operational issue and is considering a possible workover with a goal to return the well to full production capability of approximately 250 barrels of oil per day.

The Cheal joint venture is also considering plans to drill two additional wells from the Cheal A site (Cheal A5 and Cheal A6) subject to a review of drilling costs and consideration of drilling Cheal A5 as a horizontal well to maximize flow rate and drainage in this proven pool.