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JUNE 9, 2011

TAG OIL LTD. BUY


TAO - TSXV TARGET: PROJ. RETURN: VALUATION:
Share Data

We expect TAG to demonstrate substantial production growth from just its conventional wells at the Cheal and Sidewinder discoveries. We believe the Basic Shares O/S (mm) 49.5 company is undervalued based on its conventional assets and that its shale oil Fully Diluted O/S (mm) 52.9 exploration play is a free option. Market Cap ($mm) 314.1 Enterprise Value ($mm) 239.7 IMPACT Production to Grow to 6,500 boe/d by Exit 2011 Working Capital ($mm) 74.3 Dividend N/A We expect TAG to demonstrate substantial production growth in 2011. With its Yield N/A production from the Cheal field plus the expected volumes from the Sidewinder Next Reporting Date Year End Late July discovery, we believe current production of approximately 1,000 boe/d could increase to 6,500 boe/d by year-end. These production additions are only from wells $8.00 that have been drilled to-date and do not include volumes from the recently announced Cheal-C1 discovery, or any additions from the ongoing appraisal and $6.00 exploration program. $4.00
$2.00 $0.00 Jun-10 Oct-10 Feb-11 Jun-11

$6.35 $10.00 57% 1.0x NAVPS

Superior Growth with Shale Upside


EVENT New Zealand Update

ACTION BUY On Production Growth and Shale Potential


Assuming TAG achieves a 6,500 boe/d production target, we believe the company is undervalued based on our valuation of its conventional assets only. We calculate an annualized cash flow of $68.4 million ($1.29/fd share), which is a 4.9x cash flow multiple. On a flowing barrel basis, TAG is valued at $42,502/boe/d, which is inexpensive given the high quality of TAGs production and the excellent fiscal terms in New Zealand that allow for high netback production. Note that the price of natural gas in New Zealand is US$7.00/mcf and with the offshore natural gas fields in steep decline, prices are expected to remain strong. At TAGs current market price, we believe the shale oil play is a free option. A drilling program targeting the shale oil play should commence in November 2011. We reiterate our BUY recommendation and our $10 per share target, equivalent to 1.0x our risked NAV, which equates to a 3.6x multiple of our Fiscal 2013 EV/DACF.

Short-term Technical Target


$7.00 next resistance, TAO is improving in the short-term.

Corporate Profile
TAG Oil Ltd. (www.tagoil.com) is a Canadian-based international oil and gas exploration and production company with assets located onshore in the Taranaki Basin and East Coast Basin of New Zealand.

Upcoming Events
Flow testing Sidewinders 2 and -4 Production test Cheal-C1 Work Over of Cheal-BH-1 horizontal well

Production Growth FYE Mar 31* Q1/11A Q2/11A Q3/11A Q4/11E Oils & Liquids Natural Gas Boe/d Production Growth Cash Flow (US$) Cashflow (US$) EV/DACF $mm multiple Cashflow/FD Share $/share bbl/d mmcf/d 6:1 % 294 294 7% 0.34 0.01 149.2x 300 300 2% 0.28 0.01 232.x 455 455 52% 0.57 0.01 92.7x 600 1.0 767 68% 1.18 0.02 62.x

2011E Q1/12E Q2/12E Q3/12E Q4/12E 413 0.3 455 41% 2.37 0.05 90.6x 800 1.0 967 26% 4.67 0.09 14.5x 1,000 3.0 1,500 55% 5.82 0.11 11.8x 1,800 10.0 3,467 131% 11.30 0.21 6.1x 2,000 20.0 5,333 54% 13.61 0.26 5.1x

2012E 1,404 8.6 2,830 522% 2012E 35.41 0.67 7.8x

2013E 2,000 26.2 6,370 125% 2013E 77.90 1.47 3.6x

Q1/11A Q2/11A Q3/11A Q4/11E

2011E Q1/12E Q2/12E Q3/12E Q4/12E

Bill Newman 403.750.1297, bnewman@mackieresearch.com


Shea O'Callaghan, Associate 403.750.7406, socallaghan@mackieresearch.com
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.

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The MORNING CALL TAG OIL LTD.

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NEAR TERM PRODUCTION GROWTH


Additions from Cheal Discovery

Completion of the Cheal Facility Expansion Project expected to add 500 boe/d of behind pipe production.

Current production of approximately 1,000 boe/d is entirely from Permit 38156, which contains the Cheal Discovery. The Cheal production facilities are currently being expanded to a capacity of 1,500 boe/d, and the expansion is expected to be completed in September 2011. Production additions from shut-in volumes plus the recently announced Cheal-B4ST discovery well should increase area production to 1,500 boe/d.

Additions from Sidewinder Discovery

Assuming 1,500 boe/d from Cheal and 5,000 boe/d from Sidewinder, TAGs production could reach 6,500 boe/d. by the end of 2011)

TAG has drilled a total of four successful wells at the Sidewinder Discovery, two of which have been production tested and two of which are currently testing. The Sidewinder-1 discovery well tested at a restricted rate of 1,461 boe/d (8.5 mmcf/d + 44 bbl/d) and is expected to initially produce at 10 mmcf/d plus liquids. The Sidewinder-3 well tested at a restricted rate of 7.2 mmcf/d (1,200 boe/d). TAG is currently testing the Sidewinder-4 well, which will be followed by testing of the Sidewinder-2 well.

Sidewinder Production Facilities TAG is currently installing production facilities and expects to place the Sidewinder discovery on production in August 2011. The initial capacity of the facilities is 10 mmcf/d, (1,667 boe/d) but will be expanded to 30 mmcf/d (5,000 boe/d) prior to year-end. Based on the initial test results of the Sidewinder -1 & -3 wells, and the potential production additions from the Sidewinder 2 & 4 wells, we expect Sidewinder could be producing 30 mmcf/d plus associated and non associated liquids by the end of 2011.

Assuming production of 1,500 boe/d from Cheal and 5,000 boe/d from Sidewinder, TAGs production could reach 6,500 boe/d by the end of 2011 (Figure 1).
Figure 1: Production Additions
Cheal Field Current Production Cheal Facility Expansion 1 Total boe/d 1,000 500 1,500

Sidewinder Discovery2 mmcf/d boe/d Sidewinder 1 10.0 1,667 (management estimated an initial production rate of 10 mmcf/d) Sidewinder 3 8.0 1,333 (tested at a restricted rate of 7.2 mmcf/d) Sidewinder 2 6.0 1,000 (estimated based upon Sidewinder 1&3 tests) Sidewinder 4 6.0 1,000 (estimated based upon Sidewinder 1&3 tests) Total 30.0 5,000 Total Potential Exit 2011
1 2

6,500

Expansion of Cheal facilities expected for September 2011 Sidewinder facilities initial capacity of 10 mmcf/d expected to be expanded to 30 mmcf/d by year-end. Assumes no NGL or oil volumes.

Source: Mackie Research Capital

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The MORNING CALL TAG OIL LTD.

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VALUATION AND SENSTIVITY


Assuming an exit 2011 production rate of 6,500 boe/d, we estimate TAG will generate an annualized cash flow of $68.4 million ($1.29/fd share), which calculates to a cash flow multiple of 4.9x or an EV/DACF of 4.0x. On a flowing barrel basis, TAG is valued at $42,502/boe/d, which is inexpensive given the high quality of TAGs production and excellent fiscal terms in New Zealand that allow for high netback production. Note that the price of natural gas in New Zealand is approximately US$7.00/mcf and with the offshore natural gas fields in decline, prices are expected to remain strong. If TAG achieves a 6,500 boe/d exit production rate, the company is undervalued based on our valuation of its conventional assets. At TAGs current market price, we believe the shale oil

play is a free option. A drilling program targeting the shale oil play should commence in November 2011.

Figure 2: Production Sensitivities


Production Exit 2011 (boe/d) 6,000 6,500 7,000 67.6 $1.28 5.0x 4.1x 46,044 68.4 $1.29 4.9x 4.0x 42,502 79.1 $1.49 4.2x 3.5x 39,466

5,500 Annualized Cash Flow ($mm) CF/fd share Current trading CF multiple Current EV/DACF multiple EV/boe/d 64.5 $1.22 5.2x 4.3x 50,230

7,500 92.7 $1.75 3.6x 3.0x 36,835

Source: Mackie Research Capital

RECENT CHEAL EXPLORATION SUCCESS Cheal-C1 Encounters Potential Pay in the Moki Formation

The Cheal-C1 exploration well encountered 73 net metres of high-quality porous sandstone in the Moki Formation.

On June 7th, 2011, TAG announced the drilling results from the Cheal-C1 exploration well (100% WI) that was drilled 3.5 km to the northwest of the Cheal field (Figure 3). The exploration well encountered over 15 metres of net oil and gas pay in the Mt. Messenger formation with free oil encountered during drilling. The Cheal-C1 well could prove that the Mt. Messenger sandstones could be hydrocarbon bearing over a much wider area than previously known. While the Mt. Messenger zone was the primary target, the well was deepened to a total depth of 2,382 metres to target the down-dip edge of a potential large closure within the Moki formation. The well intersected 73 metres of high-quality sandstone reservoir interbedded in a 200 metre section within the Moki formation. TAG plans to test the top 5-10 metres of the Moki sandstone to determine if the discovery is commercial. Future wells targeting the Moki formation will be drilled structurally higher, which could increase the potential pay of the discovery. Very few wells onshore have tested from the Moki formation; however, the offshore Maari oil field, which produces from the Moki formation, has estimated 2P reserves of 45 million barrels. Cheal-B4ST The Cheal-B4ST discovery well (100% WI) averaged 400 boe/d (360 barrels of oil and 240 mcf of gas) during flow testing, from 17 metres (56 feet) of net pay in the Urenui and Mt. Messenger zones. Both zones from the well were completed and placed on long-term production. TAG currently has no reserves booked to the Urenai formation in the Cheal Field.

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Figure 3: Cheal Discovery Area

Source: Mackie Research Capital

SIDEWINDER DISCOVERY (100% W.I.)

Sidewinder-1 achieved stabilized flow rates of 1,461 boe/d during testing.

TAG holds a 100% interest in the 7,910 acre Broadside exploration permit PEP 38748 located to the north of the Cheal field within the Taranaki Basin. The block directly offsets the Kaimiro and Ngatoro oil and natural gas fields which in aggregate hold 25 million barrels of oil equivalent of proven reserves. Based on 3D seismic, the company identified five drillable prospects and an additional 5-10 follow-up leads with a combined OOIP resource potential of 30 million barrels. On September 29, 2010, TAG announced that the Sidewinder-1 exploration well drilled on the Broadside permit was successful.

Sidewinder-1 During flow testing, the Sidewinder-1 well achieved stabilized flow rates of 1,461 boe/d, consisting of 8.5 mmcf/d and 44 bbl/d. The well encountered 14 metres of net sandstone pay within the Mt. Messenger Formation. Production modeling indicates anticipated initial flow rates from Sidewinder1 exceeding 10 mmcf/d declining over 36 months to flow rates exceeding 5mmcf/d.

Sidewinder-2 The Sidewinder-2 well encountered a total of 47 metres (154 feet) of potential net oil and gas pay within the Mt. Messenger formation (primary target) and five additional sandstone reservoirs. Free oil was observed while drilling. The Sidewinder-2 appraisal well increased the aerial extent of the Sidewider-1 discovery and set-up additional development appraisal locations for the newly discovered reservoirs. We expect production test results for the Sidewinder-2 well to be released shortly.

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Page 5

Sidewinder-3 Sidewinder-3 was drilled 1.1 km south of the Sidewinder-1 and -2 wells and encountered 15.4 metres of potential net oil pay within the Mr. Messenger Formation. The well tested at an average rate of 7.2 mmcf/d (1,200 boe/d) with less than a 50% drawdown. The Sidewinder-3 well shows that the Mt. Messenger sands extend significantly to the south of the original Sidewinder discoveries and the size of the discovery area is potentially larger than initial estimates.

Sidewinder-4 TAG has moved the rig onto the Sidewinder-4 well in order to flow test 19 metres of net potential oil and gas pay encountered within the Mt. Messenger Formation. The success of Sidewinder-4 exploration well shows that the Mt. Messenger sands extends further to the East of the original Sidewinder Discovery. Note that there is no water column evident in any of the Sidewinder wells.
Figure 4: Sidewinder Discovery Area

Source: Mackie Research Capital

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The MORNING CALL TAG OIL LTD.

Page 6

EAST COAST BASIN MASSIVE UNCONVENTIONAL RESOURCE UPSIDE TAG holds a 100% interest in three exploration permits with a combined acreage of 2.3 million acres in the East Coast Basin of New Zealand (Figure 5). The area remains vastly unexplored and is prospective for both conventional and unconventional fracture oil shale targets at depths ranging from 250 metres to 4,000 metres. Independent engineers assigned an undiscovered resource potential of 12.6 billion barrels of original oil in place (OOIP) to Waipawa and Whangai shales located on less than 10% of TAGs acreage. Although it is early in the exploration phase and there can be no assurances that the use of horizontal multi-stage frac technology will be effective in recovering oil locked within the shale, the potential impact on TAGs valuation could be tremendous if even a portion of the play is proven economic. In November 2011 TAG plans to commence a multi-well drilling program targeting the unconventional oil shale potential.

Figure 5: East Coast Basin

Source: Mackie Research Capital

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The MORNING CALL TAG OIL LTD.

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Figure 6: TAG Oil Ltd. Detailed History and Forecast


TAG Oil Ltd.
Shares Basic Shares (mm) Diluted Sh. (Treasury) Fully Diluted (mm) Fiscal Year Ended March 31 Production Oil & Liquids Natural Gas Boe/d Production Grow th Percentage Natural Gas Cash Flow & Earnings (C$) Cash Flow Cash Flow /FD Share Earnings/FD Share $/Barrel of Oil Equivalent (C$) Revenue Operating Costs G&A Cash Flow Valuation Metrics (C$) FD Cash Flow Multiple EV/DACF Multiple EV/Production Com m odity Price WTI Corporate Oil & Liquids Corporate Natural Gas Exchange Rate Capex and Capital Structure Capex Weighted Average Basic Dilutive Shares Year-end Net Debt (WC) Net Debt/Cash Flow Net Asset Value Estim ate (C$ thousands) Reserves (P + P)* Net Debt (W.Capital) Other Assets Other Liabilities Net Asset Value NAV/Share NAV/FD Share Risked Exploration (C$) Risked NAV/share (C$) Risked NAV/FD share (C$) 26,319 (74,315) 100,634 2.03 2.03 442,200 10.98 10.06 Reserve Estim ate Proven Probable P+P 44% 56% (mboe) 307 387 694 Land Base (Acres) Gross Net Basin Taranaki 15,397 15,397 East Coast 2,275,911 2,275,911 2,291,308 2,291,308 Market Value Market Cap (C$mm) $ 314.1 Enterprise Value (C$mm) $ 239.7 Net Debt (W.C.) (C$mm) $ (74.3) Stock Price Close C$: $6.35 High C$: $7.45 Low C$: $2.31

TAO
Target Target Price C$: $10.00 Potential Return: 57.5% Risked NAV: 1.0x

49.5 52.9 57.1

bbl/d mmcf/d 6:1 % % $ mm $/share $/share $/boe $/boe $/boe $/boe

C$/boe/d US$/bbl C$/bbl C$/mcf US$ per C$ $ mm mm mm C$ mm

Mar 31/09 Mar 31/10 Mar 31/11 June 30/11 Sept 30/11 Dec 31/11 Mar 31/12 Mar 31/12 Mar 31/13 2009A 2010A 2011E Q1 12E Q2 12E Q3 12E Q4 12E 2012E 2013E 135 323 413 800 1,000 1,800 2,000 1,404 2,000 0.3 1.0 3.0 10.0 20.0 8.6 26.2 135 323 455 967 1,500 3,467 5,333 2,830 6,370 na 139% 41% 26% 55% 131% 54% 522% 125% 0% 0% 9% 17% 33% 48% 63% 50% 69% 2009A 2010A 2011E Q1 12E Q2 12E Q3 12E Q4 12E 2012E 2013E 1.95 0.25 2.37 4.67 5.82 11.30 13.61 35.41 77.90 0.10 0.01 0.05 0.09 0.11 0.21 0.26 0.67 1.47 (0.97) (0.12) (0.01) 0.02 0.02 0.07 0.05 0.17 0.66 2009A 2010A 2011E Q1 12E Q2 12E Q3 12E Q4 12E 2012E 2013E 99.84 55.37 80.18 80.93 71.55 63.63 56.35 62.27 125.22 30.92 13.05 21.26 14.84 14.84 15.00 15.33 15.00 27.04 30.41 17.67 21.19 5.73 6.92 5.00 5.11 5.33 10.67 39.58 2.11 14.28 53.72 42.64 35.44 27.74 34.27 75.41 2009A 2010A 2011E Q1 12E Q2 12E Q3 12E Q4 12E 2012E 2013E 63.4x 560.3x 118.2x 18.0x 14.5x 7.4x 6.2x 9.5x 4.3x 59.2x na 9.5x 3.9x 4.5x 4.4x 4.6x 7.8x 3.6x 1,774.4 742.2 526.7 248.0 159.8 69.2 45.0 84.7 37.6 2009A 2010A 2011E Q1 12E Q2 12E Q3 12E Q4 12E 2012E 2013E 99.92 60.00 79.55 95.00 95.00 95.00 95.00 95.00 95.00 92.70 44.17 79.55 95.00 95.00 95.00 95.00 95.00 95.00 4.70 4.50 5.00 6.00 6.00 6.00 6.00 6.00 7.00 1.06 1.14 0.99 1.01 1.00 1.00 1.00 1.00 1.00 2009A 2010A 2011E Q1 12E Q2 12E Q3 12E Q4 12E 2012E 2013E 2.1 5.9 17.0 8.0 10.0 12.0 15.0 45.0 77.9 17.9 20.6 40.6 49.5 49.5 49.5 49.5 49.5 49.5 19.5 22.0 44.2 53.3 53.3 53.3 53.3 53.3 58.3 (7.9) (9.2) (69.2) (65.9) (61.7) (61.0) (59.6) (59.6) (59.6) na na na na na na na na na

$ $ $ $

Reserve Life Index 2011 2012 Proven 1.8 0.3 P+P 4.2 0.7

Source: SEDAR, Company reports, Mackie Research Capital

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The MORNING CALL TAG OIL LTD.

Page 8

RISKS TO TARGET
Failure to prove commerciality of shale oil play: A multi-stage fracture stimulation of a source rock is a complex process and has never been attempted before in New Zealand. Although the Waipawa and Whangai shales have characteristics that are favourable to this technology, there can be no assurance that TAG will be successful at proving commerciality of the play.

RELEVANT DISCLOSURES APPLICABLE TO: TAG OIL LTD.


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 analysts personal views and (ii) no part of the research analysts compensation was or will be directly or indirectly related to the specific conclusions or recommendations expressed in this research report.

Information about Mackie Research Capital Corporations Rating System, the distribution of our research to clients and the percentage of recommendations which are in each of our rating categories is available on our web site at www.mackieresearch.com. The information contained in this report has been drawn from sources believed to be reliable but its accuracy or completeness is not guaranteed, nor in providing it does Mackie Research Capital Corporation assume any responsibility or liability. Mackie Research Capital Corporation, its directors, officers and other employees may, from time to time, have positions in the securities mentioned herein. Contents of this report cannot be reproduced in whole or in part without the express permission of Mackie Research Capital Corporation. (US Institutional Clients - Mackie Research USA Inc., a wholly owned subsidiary of Mackie Research Capital Corporation, accepts responsibility for the contents of this report subject to the terms and limitations set out above. US firms or institutions receiving this report should effect transactions in securities discussed in the report th rough Mackie Research USA Inc., a Broker-Dealer registered with the Financial Industry Regulatory Authority (FINRA)). 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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