New Zealand Energy Corp. ("NZEC" or the "Company") (TSX VENTURE:NZ)(OTCQX:NZERF)
has released the results of its first quarter ended March 31, 2014. Details of
the Company's financial results are described in the Unaudited Consolidated
Interim Financial Statements and Management's Discussion and Analysis which,
together with further details on the Company's operational activities, are
available on the Company's website at www.newzealandenergy.com and on SEDAR at
www.sedar.com. All amounts are in Canadian dollars unless otherwise stated.
HIGHLIGHTS
-- 19,682 barrels of oil produced and 17,630 barrels of oil sold during Q1-
2014 (Q1-2013: 30,179 and 27,246, respectively)
-- Average corporate production during Q1-2014: 219 barrels/day (net to
NZEC)
-- Average field netback during Q1-2014 of $62.33 per barrel (Q1-2013:
$45.29 per barrel)
-- Total oil sales recorded during Q1-2014 of $2,100,545 (Q1-2013:
$3,061,064), with an additional $362,459 of third-party revenue (net to
NZEC) earned through the Waihapa Production Station (Q1-2013: $nil)
-- New arrangement with gas marketing counterparty commenced May 5, 2014,
expected to generate between NZ$250,000 and NZ$1 million revenue per
year (net to NZEC)
-- Generated total net proceeds of approximately NZ$1.47 million through
disposal of non-core assets subsequent to March 31, 2014
-- Production during May 2014 averaged 201 barrels/day net to NZEC. See
Figure 1 for current status of producing wells and anticipated near-term
activities
To view Figure 1 - NZEC's Production & Development Wells, please visit the
following link: http://media3.marketwire.com/docs/949153-F1.pdf
FINANCIAL SNAPSHOT
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Preceding
For the quarter quarter ended Comparative
ended December 31, quarter ended
March 31, 2014 2013 March 31, 2013
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Production 19,682 bbl 16,790 bbl 30,179 bbl
Sales 17,630 bbl 13,968 bbl 27,246 bbl
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Price 119.15 $/bbl 115.77 $/bbl 112.35 $/bbl
Production costs 44.25 $/bbl 43.39 $/bbl 62.08 $/bbl
Royalties 12.57 $/bbl 10.53 $/bbl 4.98 $/bbl
Field netback 62.33 $/bbl 61.84 $/bbl 45.29 $/bbl
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Revenue 6,320,949 4,108,911 2,925,258
Total comprehensive income
(loss) 8,452,444 (5,963,723) 1,313,397
Finance income (expense) (69,854) (30,804) 17,887
Loss per share - basic and
diluted (0.01) (0.06) (0.02)
Current assets 11,952,031 15,147,197 48,199,638
Total assets 124,788,600 116,782,687 129,545,992
Total long-term liabilities 7,626,669 7,068,585 3,273,617
Total liabilities 14,279,266 15,337,630 33,939,619
Shareholders' equity 110,509,334 101,445,057 95,606,373
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Note: The abbreviation bbl means barrel or barrels of oil.
As at May 27, 2014, the Company had an estimated $2.8 million in working capital
(excluding materials and supplies of approximately NZ$2 million).
PROPERTY REVIEW & OUTLOOK
Taranaki Basin
Within the Taranaki Basin, NZEC holds a 100% interest in the Eltham Permit, a
65% interest in the Alton Permit with L&M Energy ("L&M"), and a 50% interest in
the TWN Licenses and the TWN Assets with L&M. The Company has lodged an
application with New Zealand Petroleum & Minerals to convert a portion of the
Eltham Permit into a Petroleum Mining Permit, comprising the area surrounding
the Copper Moki and Waitapu oil discoveries. The Taranaki Basin offers
production potential from multiple prospective formations, ranging from the
Kapuni sandstones at a depth of approximately 4,000 metres, the Tikorangi
limestones at approximately 3,000 metres, the Moki sandstones at approximately
2,500 metres, and the shallower Mt. Messenger and Urenui sandstones at
approximately 2,000 metres. All of NZEC's production to date is from the
Tikorangi and Mt. Messenger formations.
Production and Processing Revenue
To date the Company the Company has advanced 12 wells to production: four wells
on the Eltham Permit and eight wells on the TWN Licenses. Total corporate
production during the first quarter of 2014 averaged 219 bbl/d net to NZEC (not
including production from the Waihapa-8 well). On March 29, 2014 the Waihapa-8
well commenced production, on April 12, 2014 the Toko-2B well recommenced
production following installation of high-volume lift, and on April 17, 2014 the
Waihapa-2 well commenced production following a successful uphole completion.
Production from Toko-2B, Ngaere-2 and Ngaere-3 is combined into one single
gathering pipeline that goes through the B-train separator at the Waihapa
Production Station. Ngaere-2 and Ngaere-3 were taken offline on April 12, 2014
in order to allow for full evaluation of Toko-2B's production performance. Total
corporate production during April 2014 averaged 228 bbl/d net to NZEC. Ngaere-2
and Ngaere-3 resumed production on May 4, 2014, while the Toko-2B well was
shut-in to allow for installation of a permanent power source. Toko-2B resumed
production on May 19, 2014. The Waihapa-2 well produced for eight days during
May and is currently shut-in awaiting evaluation and installation of an
alternative artificial lift method. The Copper Moki-3 well has been shut-in
since early March awaiting installation of a new pump. Total corporate
production during May 2014 averaged 201 bbl/d net to NZEC.
TWN Licenses
NZEC and L&M acquired the TWN Licenses on October 28, 2013 and formed the TWN
Joint Arrangement ("TWN JA"), with NZEC as the operator, to explore and develop
the TWN Licenses and operate the Waihapa Production Station and associated
infrastructure. To date, the TWN JA has advanced eight wells to production for a
total of 42,620 bbl produced since closing of the TWN Acquisition (21,310 bbl
net to NZEC), with cumulative pre-tax oil sales net to NZEC of approximately
$2,324,833. The wells produce light approx. 41 degrees API oil that is delivered
by pipeline to the Waihapa Production Station and then piped to the
Shell-operated Omata tank farm, where it is sold at Brent pricing less standard
Shell costs.
Following closing of the TWN Acquisition, the TWN JA immediately proceeded with
the work required to reactivate oil production from the Tikorangi Formation in
six wells drilled by previous operators. On December 2, 2013, NZEC announced
that all six wells had been reactivated and were flowing into the Waihapa
Production Station. In March 2014, the TWN JA also reactivated oil production
from the Mt. Messenger Formation in a well that had been drilled and produced
from the Mt. Messenger Formation by a previous operator (Waihapa-8). The
Waihapa-8 well produced an average of 20 bbl/d (10 bbl/d net to NZEC) over the
last two weeks of May. The TWN JA is evaluating alternative methods of
artificial lift that could produce the well more effectively than the current
heated gas lift.
The TWN JA continues to evaluate and optimize production from the reactivated
wells. As part of the optimization process, in April 2014, the TWN JA installed
high-volume lift ("ESP") on one of the reactivated wells (Toko-2B). Toko-2B was
chosen as the first well for ESP installation because the well had a high oil
cut of approximately 20%, but had to be shut-in every few days to allow the
Company to unload a water column that would build up in the well. The TWN JA
expected that an ESP would allow the well to be produced continuously and would
maximize oil recovery. The ESP was operated initially using a portable
generator, which limited the pumping capacity and did not adequately draw down
fluid levels in the well. In May 2014 the TWN JA connected the Toko-2B
high-volume lift to a permanent power source and is gradually increase the
pumping rate. The Toko-2B well has produced an average of 10 bbl/d (5 bbl/d net
to NZEC) over the last five days, with the ESP pumping at a rate of 2,500 bbl/d.
Current pumping rates are still not sufficiently drawing down fluid in the well,
as evidenced by the oil cut of 1.2%, which is lower than expected. The TWN JA is
hopeful that higher pumping rates will draw down fluid levels in the well and
allow the oil cut to increase, and is steadily increasing pumping rates with the
expectation of ramping up to 8,000-10,000 bbl/d by June 2, 2014.
A number of wells on the TWN Licenses, with previous production from the
Tikorangi Formation, have uphole completion potential in the shallower Mt.
Messenger Formation. The TWN JA has recompleted one well uphole in the Mt.
Messenger Formation (Waihapa-2) and achieved production from that well in April
2014. This successful recompletion confirms that production can be achieved from
an uphole reservoir. The Waihapa-2 well had produced an average of 120 bbl/d (60
bbl/d net to NZEC) over a period of eight days in May with an oil cut of
approximately 67%. The presence of sand is not uncommon in the Miocene
Formation, and the downhole pump is designed to handle some sand. The inflow of
water and oil into the well, however, is drawing in volumes of sand that make
the current artificial lift ineffective. The TWN JA is evaluating alternative
methods of artificial lift which could service both the Waihapa-8 and Waihapa-2
wells.
The TWN JA continues to review well logs, historical drilling records and
seismic data across the TWN Licenses to identify additional opportunities to
advance existing wells to production. The TWN JA has identified four additional
production opportunities in existing wells on the TWN Licenses: three uphole
completions in the Mt. Messenger Formation and one well that offers production
potential from both a Tikorangi reactivation and a Mt. Messenger uphole
completion. The TWN JA will continue to evaluate these opportunities with the
objective of advancing these wells to production.
Third-party revenue from the Waihapa Production Station since closing the TWN
Acquisition totals approximately NZ$979,704 to NZEC. In addition, during
February 2014, the TWN JA entered into an agreement with a gas marketing
counterparty to transport gas along a section of the TAW gas pipeline for a term
of four years with a five-year right of renewal. The arrangement is expected to
generate between NZ$250,000 and NZ$1 million revenue per year (net to NZEC).
First gas commenced flowing on May 5, 2014, with revenue to be received from the
counterparty from July 1, 2014. From May 5 to July 1, the counterparty will pay
all reasonable direct costs and charges incurred by the Company with regards to
this arrangement.
Eltham Permit
The Company has drilled ten exploration wells on its 100%-owned Eltham Permit.
Four have been advanced to production. Of the ten wells drilled on the Eltham
Permit, only one well (Wairere-1) failed to encounter hydrocarbons and was
immediately sidetracked. One well (Copper Moki-4) made an oil discovery in the
Urenui Formation and has been shut-in pending additional economic analysis and
evaluation of artificial lift options. Wairere-1A was drilled to the Mt.
Messenger Formation and encountered hydrocarbon shows, with completion pending.
Arakamu-2 made an oil discovery in the Mt. Messenger Formation and has been
shut-in pending evaluation of artificial lift options. Waitapu-1 is shut-in
pending further testing or sidetrack to an alternate target and Arakamu-1A, a
Moki Formation well, is suspending pending further evaluation. The Company
continues to assess and reprioritize these Eltham Permit opportunities as new
reservoir data becomes available from the Company's activities on the TWN
Licenses.
To date the Company has produced approximately 260,879 bbl from its Eltham
Permit wells (including oil produced during testing), with cumulative pre-tax
oil sales from inception of approximately $28.3 million). All of the Eltham
Permit wells produce light approx. 41 degrees API oil from the Mt. Messenger
Formation. Oil is trucked to the Shell-operated Omata tank farm and sold at
Brent pricing less standard Shell costs. Production from the Eltham wells has
been very stable year to date, averaging 108 bbl/d during the first quarter of
2014, and 131 bbl/d during May 2014. The Waitapu-2 well recommenced production
on March 6, 2014 following installation of artificial lift. The Copper Moki-3
well was shut-in during early March 2014, and is expected to resume production
in Q2-2014 following installation of a new pump.
NZEC is actively seeking farm-in partnerships to allow the Company to accelerate
exploration of additional high-priority drill targets on the Eltham Permit.
Alton Permit
During 2014, the Company plans to drill a new exploration well on the Alton
Permit. The current work program for the Alton Permit requires the Company to
drill an exploration well by November 22, 2014. The Company has identified a
drill target in the Mt. Messenger Formation and has initiated the community
engagement and technical assessments required to obtain land access consents and
permits. NZEC is actively seeking farm-in partnerships to allow the Company to
accelerate exploration of additional high-priority drill targets on the Alton
Permit.
East Coast Basin
Within the East Coast Basin, NZEC is the operator of three permits, with a 100%
interest in the Castlepoint Permit, a 100% interest in the East Cape Permit, and
an 80% working interest in the Wairoa Permit in a joint arrangement with Westech
Energy New Zealand. The Company is actively seeking a farm-in partner for its
East Coast permits, to participate in and fund exploration and development in
the East Coast Basin in return for an interest in the permits. The Company has
received an extension to its drilling commitment on the Castlepoint Permit, and
is currently required to drill its first exploration well on this permit by
November 23, 2014. The Company has identified its preferred drill location and
has initiated the community engagement and technical assessments required to
obtain land access and resource consents. The current work program for the
Wairoa Permit requires the Company to drill an exploration well by July 2, 2014.
The Company has identified the preferred drill location and has progressed the
community engagement and technical assessments required to obtain land access
and resource consents. The Company applied for but has been unable to obtain an
extension to the work program commitment, and is considering relinquishing the
Wairoa Permit. The Company anticipates completing fieldwork and geochemical
studies on the East Cape Permit in 2014.
SUMMARY OF QUARTERLY RESULTS
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2014-Q1 2013-Q4 2013-Q3 2013-Q2
$ $ $ $
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Total assets 124,788,600 116,782,687 105,313,813 127,318,182
Exploration and
evaluation assets 56,876,779 51,500,037 55,859,632 52,357,470
Property, plant and
equipment 54,786,347 49,169,997 26,621,043 26,135,651
Working capital 5,299,434 6,878,152 4,748,797 9,517,742
Revenues 6,320,949 4,108,911 1,519,010 2,109,700
Accumulated deficit (37,122,556) (35,099,834) (27,292,947) (24,616,053)
Total comprehensive
income (loss) 8,452,444 (5,963,723) 1,347,788 (6,000,775)
Basic (loss)
earnings per share (0.01) (0.06) (0.02) (0.02)
Diluted (loss)
earnings per share (0.01) (0.06) (0.02) (0.02)
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----------------------------------------------------------------------------
2013-Q1 2012-Q4 2012-Q3 2012-Q2
$ $ $ $
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Total assets 129,545,992 116,059,939 98,882,087 98,814,102
Exploration and
evaluation assets 49,610,922 37,379,726 26,377,188 25,373,718
Property, plant and
equipment 25,793,089 23,867,758 16,293,123 8,674,152
Working capital 17,533,636 28,293,845 45,204,695 53,844,035
Revenues 2,925,258 2,948,041 3,708,254 5,910,993
Accumulated deficit (22,386,089) (19,992,243) (17,804,045) (15,613,594)
Total comprehensive
income (loss) 1,313,397 (1,333,805) (2,018,634) 1,317,915
Basic (loss)
earnings per share (0.02) (0.02) (0.02) 0.01
Diluted (loss)
earnings per share (0.02) (0.02) (0.02) 0.01
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RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2014
Revenue
During the three-month period ended March 31, 2014, the Company produced 19,682
bbl (2013: 30,179 bbl) of oil and sold 17,630 bbl (2013: 27,246 bbl) for total
oil sales of $2,100,545 (2013: $3,061,064), or $62.33 per bbl (2013: $112.35).
Reduced production compared to the same period in 2013 is the result of
production declines in the Copper Moki wells, which is to be anticipated in oil
wells. Production from the Copper Moki wells has since stabilized.
During the three-month period ended March 31, 2014, the Company recorded sales
from purchased oil and condensate of $2,588,219 and $1,491,358, respectively
(2013: $nil and $nil). The Company also received $362,459 (2013: $nil) of
processing revenue from the Company's interest in the Waihapa Production
Station.
Total recorded revenue during the three-month period ended March 31, 2014 was
$1,878,912 (2013: $2,925,258), which is accounted for net of royalties of
$221,633 (2013: $135,806).
Expenses and Other Items
Production costs related to oil sales during the three-month period ended March
31, 2014 totalled $780,115 (2013: $1,691,405) or $44.25 per bbl (2013: $62.08).
The decrease in production costs in Q1-2014 compared to Q1-2013 was from cost
efficiencies due to the installation of production facilities on the Copper Moki
site. Other costs of $4,079,577 are for costs directly related to the sale of
purchased oil and condensate. During the three-month period ended March 31,
2014, fixed operating costs represented approximately 74% of total production
costs, giving rise to higher field netbacks in light of reduced production cost
compared to Q1-2013.
Processing costs of $294,622 (2013: $nil) relate to direct costs associated with
the operations of the TWN Assets.
Depreciation costs incurred during the three-month period ended March 31, 2014
totalled $829,446 (2013: $867,042), or $37.45 per bbl of oil sold (2013:
$31.82). Depreciation is calculated using the unit-of-production method by
reference to the ratio of production in the period to the related total proved
and probable reserves of oil and natural gas, taking into account estimated
future development costs necessary to access those reserves.
Stock-based compensation for the three-month period ended March 31, 2014
resulted in an expense of $249,620 (2013: $580,017). The decrease is because the
Company granted fewer share purchase options to employees, directors and
officers of the Company.
General and administrative expenses for the three-month period ended March 31,
2014 totalled $1,823,498 (2013: $1,682,505). The increase in general and
administrative costs corresponds to an increase in travel and insurance in
connection with the TWN licenses. General and administrative expenses are net of
legal fee rebates received in the amount of $249,444.
Net finance expense for the three-month period ended March 31, 2014 totalled
$69,854 (2013: $17,887). Finance expense relates accretion of the Company's
asset retirement obligations, presented net of interest earned on the Company's
cash and cash-equivalent balances held in treasury and on term deposits. During
the quarter ended March 31, 2014, the Company incurred more accretion expense
due to an increase in asset retirement obligations incurred from the acquisition
of the TWN Licenses and TWN Assets.
Foreign exchange loss for the three-month period March 31, 2014 amounted to
$216,939 (2013: $316,338). The foreign exchange loss incurred in the current
period is a result of the strengthening of the New Zealand dollar against the US
dollar, during a period in which the Company's subsidiaries (which have a New
Zealand dollar functional currency) held US dollar denominated assets and
working capital.
Total Comprehensive Income / Loss
Total comprehensive income for the three-month period ended March 31, 2014
totalled $8,452,444 after taking into account a foreign translation reserve gain
of $10,475,166 on the translation of foreign operations and monetary items that
form part of NZEC's net investment in foreign operations. Total comprehensive
loss for the three-month period ended March 31, 2013 was $1,313,397.
Based on a weighted average shares outstanding balance of 170,873,459, the
Company realized a $0.01 basic and diluted loss per share for the three-month
period ended March 31, 2014. During the three-month period ended March 31, 2013,
the Company realized a $0.02 basic and diluted loss per share, based on a
weighted average share balance of 121,933,549.
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 1.91 million acres 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, and takes a multi-disciplinary approach to value creation with a
track record of successful discoveries. 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.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as such
term is defined in the policies of the TSX Venture Exchange) accepts
responsibility for the adequacy or accuracy of this release.
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 the word "expectation", "will",
"expect", "expectation", "continue", "continuing", "could", "should", "further",
"pending", "anticipates", "hopes", "intend", "objective", "become", "potential",
"look forward", "increasing", "evaluating" 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 including, without limitation, the speculative nature of exploration,
appraisal and development of oil and natural gas properties; uncertainties
associated with estimating oil and natural gas reserves and resources;
uncertainties in both daily and long-term production rates and resulting cash
flow; volatility in market prices for oil and natural gas; 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 and production; the need to obtain various approvals before
exploring and producing oil and natural gas resources; exploration hazards and
risks inherent in oil and natural gas exploration; operating hazards and risks
inherent in oil and natural gas operations; the Company's ability to generate
sufficient cash flow from production to fund future development activities;
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 as disclosed in documents released
by NZEC as part of its continuous disclosure obligations. 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. Actual results could differ materially from those
anticipated in these forward-looking statements. 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.
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.
Rhylin Bailie
Vice President Communications & Investor Relations
North American toll-free: 1-855-630-8997
info@newzealandenergy.com
www.newzealandenergy.com
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