OIL & GAS 15 DECEMBER 2010

TAG Oil Ltd. Bill Newman 403.750.1297

TAO-TSX V: $6.62 — BUY bnewman@mackieresearch.com
TARGET PRICE: $8.00; PROJECTED RETURN: 21% Gillian Surbey, Associate 403.750.7406

Acquires First Offshore Exploration License

Financial Metr ics (C$)
EVENT – Operational Update
Shares O/S (mm): 49.2 Mkt. Cap (mm): $325.7
TAG announced that it has acquired a 20% interest in PEP 52181
FD Shares (mm): 55.1 W.C. (mm)*: $81.0
exploration licence located offshore New Zealand in the Taranaki Basin. Price: $6.62 Ent.Value (mm): $244.7
52-Wk High: $7.35 52-Wk Low: $1.52
HIGHLIGHTS – Long-Term Exploration Upside Estimated working capital as of November 17, 2010
2009A 2010A 2011E 2012E
The block, which is approximately 42,379 acres in size, is located 8 km
Reference Pricing Fiscal Year Ended March 31
from shore and is in close proximity to existing infrastructure. The block Oil (US$/bbl WTI) $99.92 $61.99 $78.00 $85.00
contains the Kaheru Miocene Prospect, which is near to other Miocene- Production
age discoveries including the Kupe Gas-Condensate field (228 bcf and 27 Liquids (bbl/d) 135 323 475 2,255
Gas (mmcf/d) 0.0 0.0 0.3 6.3
million barrels) that is now in production (Figure 1). The work
Boe/d (6:1) 135 323 517 3,299
commitment includes reprocessing and interpreting 145 km2 of 3D Financials (US$)
seismic data and drilling an exploration well prior to May 2013. Cash Flow (US$ mm) $2.0 -$1.6 $3.4 $45.0
CFPS (FD) $0.10 -$0.07 $0.08 $0.87
Cheal-BH-1 horizontal well update: The Cheal-BH-1 horizontal well is EV/DACF 61.9x -84.5x 62.9x 6.0x
currently flowing oil, natural gas, and fracture fluids. TAG is encouraged D/CF na na na na
by the test results to date and will announced a final flow rate once a 2010 Qu arters Q1A Q2E Q3E Q4E
stabilized flow rate is achieved. Liquids (bbl/d) 294 300 500 800
Gas (mmcf/d) - - - 1.0
Multi-well drilling program: TAG has contracted a rig for a 10-well Boe/d (6:1) 294 300 500 967
drilling program, expected to commence early in 2011. The program CFPS (FD) US$ $0.01 $0.01 $0.02 $0.03
consists of development and step-out wells within the Cheal area and Target Valuation Parameter
1.0x Risked NAV
additional exploration and appraisal wells at the Sidewinder area.

VALUATION – Unchanged
We calculate a core asset value for the company based upon estimated
proven and probable reserves, adjusted for net working capital or debt.
We add a risked value for the company’s near-term exploration program
to arrive at a risked net asset value estimate. At the current market price,
TAG trades at a large premium to our core value of $2.27/fd share and at
a discount to our risked NAV of $8.00/fd share. Courtesy of BigCharts.com

RECOMMENDATION – BUY on Massive Resource Potential Key Risks

Failure to prove commerciality of shale oil play: A multi-stage
TAG continues to build its production base through the drill bit and fracture stimulation of a source rock is a complex process and
through low-risk well recompletions. The growing cash-flow base should has never been attempted before in New Zealand. Although the
Waipawa and Whangai shales have characteristics that are
fund an active development and exploration program in 2011. The favourable to this technology, there can be no assurance that
acquisition of a 20% interest in PEP 52181 adds additional longer-term TAG will be successful at proving commerciality of the play.

upside. We maintain our BUY recommendation and a 12-month target

Corporate Profile
price of $8.00, equivalent to a 1x multiple of our risked NAV.
TAG Oil Ltd. (www.tagoil.com) is a Canadian-based
international oil and gas exploration and production company
VALUATION CATALYSTS with assets located onshore in the Taranaki Basin and East
Coast Basin of New Zealand.
1. A production test of over 500 bbl/d from the Cheal BH-1 horizontal
well (Dec/10).
2. Additional appraisal success of the Sidewinder discovery (Q1/11).

This report has been created by Analysts that are employed by Mackie Research Capital Corporation, a Canadian Investment Dealer. For further disclosures, please see last page of this report.
w w w . m a c k i e re s e a r c h . c o m

Toronto 416.860.7600 Montreal 514.399.1500 Vancouver 604.662.1800 Calgary 403.218.6375 Regina 306.566.7550 St. Albert 780-460-6460
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Kaheru Prospect

Figure 1. Permit 52181

Source. Company reports

www.mackieresearch.com
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TAG Oil Ltd. TAO

Share Data and Market Value Price and Target
Bas ic Shares (mm) 49.2 Close C$: $6.62
Diluted Sh. (Treasury) 52.4 52-Week High C$: $7.35
Fully Diluted (mm) 55.1 52-Week Low C$: $1.52
Market Cap. (C$ mm) 325.7 Target Price C$: $8.00
Enterprise Value (C$ mm) 244.7 Potential Return: 20.8%
Net Debt (W.C) (C$ mm) (81.0) Risk ed NAV 1.0x
Fiscal Year Eneded March 31
Production 2009A 2010A 2011E 2012E
Oil & Liquids bbl/d 135 323 475 2,255
Natural Gas mmcf/d - - 0.3 6.3
Boe/d 6:1 142 135 323 517 3,299
Production G rowth % na 139% 60% 538%
Cash Flow & Earnings (C$) 2009A 2010A 2011E 2012E
Cash Flow $ mm 2.0 (1.6) 3.4 45.0
Cash Flow/FD Share $/share $0.116 $0.10 ($0.07) $0.08 $0.87
Earnings/FD Share $/share ($0.97) ($0.20) $0.04 $0.38
$/Barrel of Oil Equivalent (C$) 2009A 2010A 2011E 2012E
Revenue $/boe/d 99.84 55.37 72.80 69.41
Operating Cos ts $/boe/d 30.92 13.05 20.24 15.86
G&A $/boe/d 30.41 17.67 14.30 6.07
Cash Flow $/boe/d 39.58 (13.79) 17.89 37.39
Valuation Metrics (C$) 2009A 2010A 2011E 2012E
FD Cash Flow Multiple 66.1x na 84.0x 7.6x
EV/DACF Multiple 61.9x -84.5x 7.6x 6.0x
EV/Production C$/boe/d 1,810.9 757.5 473.3 74.2
Com modity Pr ice 2009A 2010A 2011E 2012E
WTI US$/bbl 99.92 61.99 78.00 85.00
Corporate Oil & Liquids C$/bbl 92.70 85.00 69.41 82.00
Corporate Natural Gas C$/mcf 4.70 5.11 4.21 5.50
Exchange Rate US$ per C$ 1.06 1.14 1.02 1.00
Capex and Capital Structure 2009A 2010A 2011E 2012E
Capex $ mm 2.1 5.9 35.0 45.0
Weighted Average Basic mm 17.9 20.6 40.4 49.2
Dilutive Shares mm 19.5 22.0 42.8 51.7
Year-end Net Debt (WC) C$ mm (7.9) (9.2) (70.0) (70.0)
Net Debt/Cash Flow na na na na
Net Asset Value Estimate Reserve Estim ate 3/31/2010
(mboe)
(C$ thous ands) Proven 44% 307
Reserves (P + P)* 26,319 Probable 56% 387
Net Debt (W.Capital) (81,000) P+P 694
Other As sets -
Other Liabilities - Reserve Life Index
Net Asset Value 107,319 2009 2010
NAV/Share $ 2.18 Proven 2.6 1.6
NAV/FD Share $ 2.27 P+P 5.9 3.7
Risked Exploration (C$) 315,625
Risked NAV/s hare (C$) $ 8.60 Land Base (Acres)
Risked NAV/FD share (C$) $ 8.00 Gros s Net
Basin
Taranaki 15,397 15,397
East Coast 2,275,911 2,275,911
2,291,308 2,291,308
Dilution Inc rement 17,793

Figure 2. Fundamentals & Key Ratios

Source. Company reports, Mackie Research Capital

www.mackieresearch.com
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RELEVANT DISCLOSURES APPLICABLE TO: TAG OIL LTD.

LIST OF DISCLOSURE TERMS:

1. None applicable.

ANALYST CERTIFICATION
Each analyst of Mackie Research Capital Corporation whose name appears in this report hereby certifies that (i) the
recommendations and opinions expressed in this research report accurately reflect the analyst’s personal views and (ii)
no part of the research analyst’s compensation was or will be directly or indirectly related to the specific conclusions or
recommendations expressed in this research report.

I n f o r ma t i o n a b o u t M a c ki e R e se a r c h C a p i t a l C o r p o r a t i o n ’ s R a t i n g S y st e m, t h e d i st r i b u t i o n o f o u r r e se a r c h t o c l i e n t s a n d t h e p e r ce n t a g e o f r e c o m me n d a t i o n s wh i c h a r e i n
e a c h o f o u r r a t i n g ca t e g o r i e s i s a va i l a b l e o n o u r we b si t e a t ww w. ma c k i e r e s e a r c h . c o m.

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