Canadian-based Tag Oil is on the verge of its most diverse oil and gas drilling campaign in New Zealand, worth about C$45 million (NZ$54m) to Tag alone and C$60m (NZ$72m) including joint venture partners.
Tag is aiming to step up to target some higher-risk and higher-reward wells, to bring it into the league of big players like Todd Energy and Shell in New Zealand.
Tag plans to drill 12 wells in coming months, most in Taranaki, starting this weekend, and one at least on the East Coast, north of Gisborne, later, pending council consent.
Over the course of the financial year, Tag plans to drill nine conventional wells across three permits in Taranaki in a joint venture with East West Petroleum. Tag will also drill at least two deep wells, Cardiff and Heatseeker, which it holds alone.
The campaign starts this weekend at Tag's Cheal E-1 site near Stratford where it will drill up to five wells.
Tag will drill a deep gas well at Cardiff-3, starting in mid-September, and another three wells will be drilled at Cheal-G, by which time the company will have three rigs working at once.
Tag's chief operating officer, Drew Cadenhead, said that in the past it had drilled $3m wells in Taranaki, but new wells at Cardiff and Heatseeker would be much deeper, up to 5000 metres and much more expensive, at about $15m each.
But with the higher risk, Tag expected higher reward.
Because the prospects were deep but in low permeability structures, Tag would use fracking "to ensure economic success", Cadenhead said.
Fracking was also used by other deep gas producers in Taranaki, including Shell, STOS, Todd and Greymouth.
The controversial process of hydraulic fracturing, or "fracking", involves injecting fluid deep underground, to break open rocks to help release oil and gas.
Anti-fracking protesters have voiced their concerns about the process in Dannevirke, where Tag recently drilled an exploration well.
The 12 new exploration wells will be funded by Tag's cashflow of C$3m to C$4m a month from its existing production and it has about C$60m in the bank.
That "allows us to step up with the big boys like Todd [Energy] and Shell targeting these home run swings", Cadenhead said.
A "home run" on a deep gas well would materially change the company's balance sheet and could see its net present value double or triple with any of the big prospects.
"It's not unfathomable," he said.
At the low estimate Cardiff could hold 8 million barrels of oil and 137.3 billion cubic feet of gas (Bcf).
Past unsuccessful drilling showed there was gas in Cardiff, but it remained a question of how fast they could get it out using the latest technology of fracking and horizontal drilling.
Heatseeker could hold potential resources estimated at 83.1Bcf.
On the East Coast, Tag is seeking a non-notified Gisborne District Council consent to drill a well at its Waitangi Permit, called Punawai-1. An East Coast iwi group is looking at legal action and street protests at a lack of consultation with Maori over the planned exploration well north of Gisborne.
Tag will not know if the wells will need fracking until they are drilled. And it could take three to five years to develop an economically successful project.
Meanwhile, Tag's oil and gas wells in Taranaki produced revenues of C$14.7m (NZ$17.7m) in the June quarter, up from C$11.8m (NZ$14m) last year.
The company said daily average production was up 39 per cent in the June quarter, compared with the final quarter of the last financial year.
Tag Oil reported net income of C$4.4 million (NZ$4.9m) for June quarter, down about C$1m (NZ$1.2m) from the same period last year, as oil prices fell.
- © Fairfax NZ News