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Wellington West: TAG Oil update

Wellington West: TAG Oil update

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Published by mpgervet
New Wellington West analyst report bumps their 12-month target for TAG Oil to $9.50
New Wellington West analyst report bumps their 12-month target for TAG Oil to $9.50

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Published by: mpgervet on Dec 20, 2010
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Please see disclaimers on the last two pages of this report.International Energy
TAG Oil Ltd. (TAO-V, $6.62)
Recommendation: Speculative Buy
Kevin Shaw, P.Eng. (403) 781-2715; kshaw@wwcm.com
Ronald Cheung, CFA (403) 781-2718; rcheung@wwcm.com
 December 15, 2010
 All values in C$ unless otherwise noted.
Current Price $6.62Target Price (12-Month) $9.50Implied Capital Gain 44%
 Old New
Production (boe/d) F ‘11E
Production (boe/d) F ‘12E
Spec.BuyUnch.Target Price
$9.50 Unch.
Company Profile
TAG Oil Ltd. (TAO) is an emerginginternational exploration and productioncompany operating in New Zealand’s EastCoast and Taranaki basins. The company hasthree permits in the East Coast basin (~14billion bbls OOIP) and two permits in theTaranaki basin (~100 million boe OOIP).TAG is currently producing ~570 boe/d fromthe Cheal initial discovery / pool in theTaranaki basin with 2P reserves of 0.7million boe, although we expect significantresource upside in these two areas.
 Acquired Stake in Offshore Permit in MainTaranaki Fairway Adds Exploration Upside
20% W.I. of Kaheru prospect in offshore Taranaki is strategic to TAG
Gross prospective resource is ~350 bcf gas w/ 10 mmbbl condensate; 8 kmfrom shore & close proximity to existing infrastructure for easy tie-ins.
Test result of the 1
htzl well in New Zealand coming in January ’11
Testing & clean-up flow continues asoil, gas & frac fluids are recoveredfrom the hztl; we look for an initial rate of 500+ boe/d & a high oil cut.
Driving forward in ’11 at Taranaki and high impact East Coast basins
Financed for ‘11 to drill multiple wells on Cheal & Broadside permits (newdrilling to resume in February); E. Coast exploration wells also planned.
Offshore potential adds $2.10 unrisked or $0.21 risked to our EMV/sh
Spec Buy with a $9.50 target; conservative risked EMV/sh of ~$12 w/ steady drilling & catalysts from Taranaki and high impact E. Coast in 2011.
Financial Summary
52.152-Week Trading Range$1.53-$6.90$345Average Weekly Volume881,723 (81)Market Float (mm)$255$264Risked EMV/Share$12.15
ForecastsFY 2009
FY 2010
FY 2011E
FY 2012E
*1352017582,008  0%0%36%41%Modeled WTI Oil Price (US$/bbl)$61.56$70.38$80.74$83.75$0.88$0.99$0.95$0.95Realized Oil Price (C$/boe)$44.14$82.64$60.38$56.35$4.9$6.5$15.9$41.9Cashflow (C$mm)$2.0$0.3$4.8$19.5$2.0$0.3$4.8$19.5$2.5$2.3$19.5$56.4($1.05)($0.08)$0.03$0.24CFPS (FD TSM)$0.11$0.01$0.09$0.37
58.4x16.1x$367,371$156,985206.2x27.3x89.8x23.8x* Fiscal year ends on March 31 of each year Modeled US$/CAD$ Exchange RateRevenues (C$mm)Enterprise Value (C$mm)Production (boe/d)% gasShares FY 2011 O/S (mm, FD TSM)Market Capitalization (C$mm)Net Debt (C$mm)EV/BOE/d (per unit production)P/ETarget EV/DACFDACF (C$mm)Capex (C$mm)EPS (FD TSM)EV/DACF
Company Reports, Wellington West Capital Markets Inc.
Price Chart
      D    e    c
      0      9      F    e      b
      1      0      A    p    r
      1      0      J    u    n
      1      0      A    u    g
      1      0      O    c     t
      1      0      D    e    c
      1      0
Price (C$).
Volume ('000s)
Thomson One
TAG Oil Ltd. Kevin Shaw, P.Eng, (403)781-2715; kshaw@wwcm.com December 15, 2010- 2Ronald Cheung, CFA (403) 781-2718; rcheung@wwcm.com
Investment Summary and Outlook
TAG Oil (TAG) is a “pure play” New Zealand-based exploration andproduction company positioned to exploit over 2 million prospective acres &14+ billion barrels of original oil in place (OOIP), offering both high impactexploration and lower risk development upside.
TAG offers a mix of risk andreward opportunities across a combination of large oil-in-place conventionalreservoirs and emerging unconventional resource plays. The Taranaki basin inNorth New Zealand is a mature proven-producing basin yet remains highlyunderexplored as compared to other mature basins around the world like thosefound in North America. The lower risk Taranaki basin offers significant growthpotential across two acreage blocks (or permits) that hold an estimated 100million bbl OOIP and are 100% owned by TAG. The company’s fiscal 2012(ends March 31, 2012) focus is to delineate reserves and boost corporate oilproduction. The East Coast basin offers “game changing” upside for TAGthroughout the prove-up and commerciality of multiple oil shale zones that havesimilar technical characteristics to both the North Dakota Bakken & emergingParis Basin Liassic resource plays. Both the Taranaki and East Coast basins areprime candidates for application of North American based multi-stage fractechnology. TAG has also recently acquired an initial liquids-rich gas discoveryand has entered the offshore space both within the proven-producing Taranakibasin. Being fully financed for 2011, TAG is expected to drive forward itsdevelopment and exploration programs with steady drilling planned at both theTaranaki and East Coast basins in the coming year.
Taranaki Offshore Basin – Macro Picture
Untapped Exploration Potential with Multiple Prospects
While most current producing fields are located onshore, the offshore basinaccounts for more than two-thirds of the potentially recoverable petroleumreserves in New Zealand.
The Taranaki Basin houses all of New Zealand ~20producing oil and gas fields that range in size from approximately 10 mmboe upto 3.4 tcf of original gas reserves. The giant offshore Maui gas-condensate fieldthat has been a mainstay since the early 1980’s and currently accounting for morethan 75% of the hydrocarbon production in country. The Maui field is now indecline mode and is expected to only be partially replaced by the offshorePohokura and Kupe fields, which are likely to come into production over the nextfew years.
TAG Oil Ltd. Kevin Shaw, P.Eng, (403)781-2715; kshaw@wwcm.com December 15, 2010- 3Ronald Cheung, CFA (403) 781-2718; rcheung@wwcm.com
Exhibit 1:
New Zealand’s Offshore Portion of Taranaki Basin
Source: 2010 New Zealand Petroleum Basin Report
Taranaki Offshore Basin – Acquisition Potential
 Acquires 20% Interest in Prospective Exploration Permit Along Fairway
The Kaheru Prospect is the primary structure and target with meanprospective resources estimated to be ~350 bcf of gas and 10 mmbbl of associated condensate immediately adjacent to Origin Energy’s Rimu-Kaurifields.
The prospect lies beside two of the most recently discovered producingoil and gas fields, Rimu (32 bcf and 2.5 mmbls recoverable) and Kauri (1.3mmbls recoverable), and is a sub-thrust anticline south of an extensive onshorehydrocarbon trend and immediately to the south of the proven Tarata Thrusttrend and to the east of the Kupe Field (288 bcf and 27mmboe in recoverables).The acreage is also covered by both 2D and 3D seismic, is in shallow water

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