ST: New Zealand Energy Announces 97% Increase in Oil Reserves Estimate
VANCOUVER, BRITISH COLUMBIA--(Marketwire - Oct. 24, 2012) - New Zealand Energy Corp. (TSX VENTURE:NZ)(OTCQX:NZERF) ("NZEC" or the "Company") has updated its reserve and resource estimation and economic evaluation based on a report (the "Report") prepared by Deloitte & Touche LLP ("AJM Deloitte"), resulting in a 97% increase to Proved + Probable + Possible ("3P") oil reserves and a 172% increase to 3P natural gas reserves. The before-tax net present value of 3P reserves at a 10% discount rate increased by 64%.
NZEC commissioned AJM Deloitte to prepare an interim reserve estimate and economic evaluation to include data from wells that commenced continuous production in 2012. The interim reserve and resource estimation and economic evaluation was prepared in accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities. Regulatory filings associated with the Report are available for review on SEDAR at www.sedar.com. All values are reported in C$ unless otherwise noted.
The interim reserve estimate and economic evaluation was confined to NZEC's 100% working interest Eltham Permit (PEP 51150) and based on reservoir and production data from the Copper Moki-1, Copper Moki-2 and Copper Moki-3 wells, with an effective date of September 30, 2012. Proved developing producing reserves were assigned based on volumetric calculation and the wells' performance to date. Oil analyses indicate an average oil gravity of 40 API. No reserves will be assigned to the Copper Moki-4 well until the well demonstrates commercial production rates.
Daily production data were used to predict the production profiles and recovery factors. NZEC is currently installing artificial lift systems (pump jacks) on all three wells. AJM Deloitte forecast an increase in production rates under the proved undeveloped case to account for artificial lift. An updated reserve estimate, coinciding with NZEC's financial year-end of December 31, will incorporate data from artificial lift production rates.
Notes: Mbbl - thousand barrels of oil. MMcf - million cubic feet of natural gas. Mboe - thousand barrels of oil equivalent using a conversion ratio of 6 Mcf : 1 bbl. Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. The boe conversion ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves. See Cautionary Note Regarding Reserve Estimates.
The net pay was accumulated applying a 15 percent density porosity cut-off. Density porosity was computed using a 2,710 kg/m3 matrix grain density which is equivalent to a limestone matrix. A limestone matrix was taken from the cross plot of core porosity versus grain density supplied by NZEC. The Mt. Messenger formation is reported to be a laminated "shaly" sand with lithic rock fragments. The lithic fragments are responsible for the higher matrix density, greater than the conventional 2,650 kg/m3 commonly used to compute porosity in sandstones. Log computed density porosities seem to be in good agreement with the core porosity so that a shale correction was not applied to the density porosity. Water saturation (Sw) was computed using both the Simandoux and dual water models; little difference was noted between the two techniques, and the dual water model values were used for volumetric calculations. A formation water resistivity (Rw) of 0.11 ohm*m at a formation temperature of 53°C and a shale resistivity of 5 ohm*m were used as constants in the calculations.
AJM Deloitte also reviewed the seismic mapping presented by NZEC and agrees that this data is likely indicative of the higher permeability regions targeted by the wells but is not conclusive relative to the total extent of the reservoirs.
Economic Parameters
Fixed and variable operating costs for the Copper Moki wells were estimated based on December 2011 to August 2012 lease operating statements provided by NZEC. The wells are currently using temporary facilities; therefore, operating costs are higher than anticipated for the future.
Capital required to install artificial lift systems on the wells has been included as provided by NZEC. NZEC has indicated that future capital will be spent on installing heating and separating facilities and continuing to produce to tanks until sufficient production exists in the field to justify building a pipeline. The estimated $1,900,000 cost for additional site facilities is expected to be incurred in November 2012. Fixed operating costs were assumed to decrease by over 75 percent commencing with the first quarter of 2013, following completion of these operations.
NZEC has a contract with Shell (Petroleum Mining) Company Limited to purchase the oil on a Brent price basis. The Brent price is forecast in USD; however, the forecast exchange rate from USD to CAD is 1.0 so these prices can be assumed to be in CAD. The purchase price is subject to a number of price adjustments, with a total oil price offset of $3.90/bbl applied based on a comparison of the price received during the Q1-Q2 2012 accounting period to the actual spot prices for the same period using the Brent price as a reference.
NZEC expects that pentanes will be sold as oil at the oil pricing discussed above. Netback prices for the other NGL products (propane and butane) are expected to average approximately $28/bbl in the first year. Gas is expected to be sold at a price of approximately $3.25/Mcf in the first year.
The royalty regime in New Zealand requires payment of either an ad valorem royalty (five percent of net revenues from sale of petroleum products) or an accounting profits royalty (20 percent of the accounting profit of petroleum production), whichever is greater in a given royalty period. The accounting profit is calculated after deduction of various prescribed costs, which can include operating, capital, abandonment, and overhead.
The New Zealand income tax rate for companies is 28% of taxable income. Taxable income is calculated after applying certain deductions against assessable income. The New Zealand petroleum mining income tax regime treats all income resulting from petroleum production as assessable income. Allowable deductions include exploration and development expenditures, as well as costs incurred on removal or restoration operations (such as abandonment and reclamation costs).
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 2.25 million acres (including pending permits) 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.
