interesting article

I have picked this up from the NZO thread and only left in the relevant Tui information and left out the rest. I think it is from the Oil and Gas Weekly.

Please note Sentia that the CEO says water cut is a lot less than they were expecting and that tax losses will be mostly utilised by 30 June 2008, with only some Kupe items to carry forward.

Also, and this begs the question, it looks like from what I am reading that there is potential for both a production upgrade for year ending 30 June 2008 and perhaps some potential for a reserves upgrade as well. Read it carefully.

"On Wednesday 12th December our New Zealand correspondent attended an analysts’ visit to the NZOG Taranaki operations. Here is his report.

Leaving Auckland airport by chartered plane, we flew past and around the Tui facilities offshore Taranaki. We then flew over the Ensco-107 rig which had just completed installing the production platform for the Kupe Gas and
Condensate Project. (Since the visit, the Ensco-107 has begun drilling the three Kupe development wells).

On the bus trip to the Kupe processing station, Salisbury commented on the Tui Project. Production there was going extremely well, and another production well, Tui #4, is planned to be drilled (most likely in 2009). This additional well will access some of the increased reserves that were announced in November ‘07.

Asked to comment on the October oil spill Salisbury said the JV was very disappointed that this happened. While it was a minor one-off discharge that has been cleaned up and the potential penalties were not that great, the negative publicity the project received showed the true impact a moment’s carelessness could have.

Asked whether there was further potential to increase the Tui reserves, David said the reservoir engineers and technical people at AWE would continue to monitor and study the data. But he was confident that 42 mmbbls was achievable based on current information.

Following the site visit, David Salisbury agreed to answer a number of further questions for OGW.

OGW:There is a lot of conjecture about the running costs of Tui. Can you clarify how much the operating costs are to run the Tui facility?

DS: The costs are less than US$10 a barrel. This includes the cost of the lease payments for the FPSO.

OGW:There is another development well to be drilled at Tui. Is there potential for a further upgrade to reserves if this well is successful?

DS: The well is to bring into production the northern part of the Tui field, to access some of the recently announced additional reserves. But the really good news is that the majority of the reserves increase will come from the existing wells basically, the reservoir is bigger than we expected. As with any oil field, we will have further reserve assessments as we go along, but the 42mmbbl figure is a good P50 number, as likely as not.

OGW: Will the new well allow the field to produce for a longer period at 50,000 barrels a day, given that you have more productions wells to balance your output with?

DS: Not really. The ability to produce at 50,000bpd is dependent on the water cut from the field. The facility can process up to 120,000 bpd of liquids. To date the water cut has been less than expected, but water cut levels
can change quickly.

It looks like we will be going along at 50,000 bopd for a while yet, but we certainly expect that level of daily production to fall before the fifth well comes into production. We would expect overall production to then increase again, but it’s too soon to predict what level might be reached.

OGW:When is the JV due to start paying royalties? And at the current rate of production, the company must be on track to use up the substantial tax losses it has available by 30 June 2008?

DS: Royalties are accruing but NZO hasn’t had to make any payments yet. Regarding our tax position, given that the water cut is lower than we expected and production is going so well, it is likely that we will use up most if not all of the tax losses that are available to be used in the current financial year. We also have other offsets against tax that have to be carried forward into future years.

OGW:So right now NZO is receiving the entire cash flow from Tui sales, less only the operating costs? With at least 6,000 bopd net to NZO that must be over A$600,000 a day?

DS: Yes, but those royalties and company tax still have to be paid when due.

OGW:Can you explain what the schedule is for the Tui project debt to be repaid? Is this something the company has direct control over or is it something managed by the JV?

DS: NZO has its own debt arrangements for the Tui development - a US$27.5m loan. Most of that loan will be repaid in the current financial year.

OGW:When will the Tui JV have additional targets ready to drill close to the Tui field? Is there any rush to drill these targets?

DS: The prospects close to Tui are interesting, given the likely economics of the nearby location of the facilities. Once our exploration team - and our JV partners - have fully evaluated the targets, these will be built into the next drilling schedule.