David Pescod 780-408-1750 Debbie Lewis 780-408-1748 Fax: 780-408-1501
C.S: I don't think disappointment is warranted. Only badweather is delaying the start of a three well shallow oilwell program on the eastern acreage and early Marchshould see the beginning of optimization work on Chealtargeting three wells initially. Success at the shallow 250meter cored drilling will not result in substantial produc-tion increases. These wells are following up on a 100year old discovery where a 600’ well recorded productionof 20 to 50 bbls/day of 50 API sweet oil. This oil wastested and confirmed as having the underlying Whangaiand Waipawa shales as the source. The three shallowcored wells will provide TAG with information to deter-mine if there are economics to develop a shallow oil playand on a success case, TAG will plan a multi-well follow-up program to establish commercial production in theBasin which will significantly enhance the basin’s profileand prospectivity. Production is anticipated to be of theorder of 20 to 50 barrels per day per well, but I would ex-pect it to have market impact focusing, as it should, theinvestor’s attention on the Sproule report and the con-cept of free hydrocarbons within the shale formations.Again, successful optimization progress at Cheal willsupport the idea of expansion of the Taranaki play andthat also should increase investor interest. So instead ofbeing a disappointment, these near term activities couldwell act as a curtain raiser for the more significant showstarting later in the year. Presently this includes theBroadside #1 well in August/September bordering on the10 million barrel Ngatoro oil field with success accelerat-ing drilling, notably at Winchester. Again, later this yearthey plan to drill a serious test of the shale play. TheBoar Hill well is scheduled to go to 2000 meters and issignificant enough to warrant heightened investor inter-est.D.P: TAG has a bit of interesting history over the lastwhile with the merging of a few companies and stock rollback, but it looks like its got good leverage with fewshares out and money in the bank. Comments?
C.S: It does have an interesting history and I would referyou to the Company’s web-site where it is well set out.What comes through here is that TAG has had its ups anddowns, but it has stuck to the job and it has rationalizedits interests in an efficient manner and that includes 30million shares outstanding.D.P: Are there any things we should know about New Zea-land considering it is probably the last place in the worldmany of us thought one should be looking for oil. Or thefact that it even had any production?
Using its parameters for TAG resulted in the astronomicalfigure of well over $100.00 per share. The point is that therising tide of unconventional plays is leading to evalua-tions that were at the extreme risk fringe moving into themain stream. Once again, however, analogies cause moreproblems than they solve, so, while piquing interest, it isno substitute for specific information.D.P: Clive, I realize there are some huge numbers beingthrown about by companies doing exploration, suggestingthat they might have a billion barrels here or a billionthere. But when TAG is suggesting in some research re-ports that they might have up to 12 billion barrels (if notmore) how much credibility should a person give to this?C.S: TAG has two reports on the East Coast Basin oil andgas potential. The first done by Sproule in March 2008gives a figure of 1.7 billion barrels in place, and the analy-sis identifies 56 leads or prospects-as grassroots as that.Main target reservoirs cited being Miocene sandstonesand Pliocene limestone formations. This is an assessmentof conventional oil and gas potential. The second report,dated September 2008, by AJM Petroleum Consultantscontains the figure of 12.7 billion barrels to which youalluded. In fact its best estimate is 12.7 billion barrels forestimated total original hydrocarbons in place combiningboth shale potentials with -wait for it- a high estimate of40billion barrels. This estimate of original oil in place byAJM is based on 187,470 acres of the 2.4 million acres.More interesting to me, however, is a second table of esti-mates "Prospective Hydrocarbons in Place-Free Hydro-carbons" which has a mean estimate of 6.1 billion barrelsgoing to a high figure of 13.3 billion barrels. That meanfigure, employing the bank technique referred to above,i.e. a recovery rate of 2.2% and $6.24 a barrel would give amean figure of $28.00 per share. However, the consultantsgive further direction by estimating recoverable hydrocar-bons which, on the mean instance, they assess at 182million barrels-value that at $6.24 per barrel and then thefigure becomes $40 per share.What would carried away mean? Going to the best esti-mate of 12 billion could be one avenue or maybe to the 40billion! Changing the recovery rate on the eastern conven-tional plays is another way to go. Additionally, using thehigh estimate for recoverable hydrocarbons on the shaleplay could increase the upside to $60 per share. And, ofcourse, we could go with the bank approach.D.P: One of the most important things here is the timing ofthis play and it’s unfortunate that they won’t be doingtheir vertical wells until the summer and doing the all-important horizontals until the third quarter of this yearand even then, we know nothing in the oil and gas busi-ness happens on time. This is disappointing, isn’t it?