The Bakken formation in North Dakota has made plenty of millionaires, not just among the ranchers who owned those cold and dusty acres in the decades before shale oil production became feasible, but for those who invested early in the companies that made the best discoveries or gobbled up the best acreage.
And the Bakken is in the headlines every day as the key to US energy independence (or, at least, lessened dependence on oil imports), so it’s perfectly understanding that the copywriters trot out the name whenever they’re trying to sell the next big shale discovery — we’re always looking for the “next Bakken”, whether it’s in Argentina or Paris or Poland or, as in this teaser today from Christian DeHaemer, in New Zealand.
Ring a bell? Yes, we ran a piece on a shale oil teaser from Keith Schaefer way back in October, also using the same basic “Next Bakken” pitch … that particular stock hasn’t worked out well so far, with some weak drilling results (that’s an understatement — it’s down from about $1.50 to 35 cents), but, well, nothing about the energy exploration business is guaranteed or easy, right? I don’t know yet whether Dehaemer’s touting this same company, but I’m at least curious enough to feed the clues into the Thinkolator so we can find out for you.
Here’s the big picture tease, all about how the New Zealand shale is bigger and thicker than the Bakken and therefore hugely exciting:
“New Zealand’s Bakken!
“A massive shale formation found in the Kiwi Nation is so huge and untouched, the New Zealand Herald reports: ‘It’s literally leaking oil and gas’
“An independent report released in October 2012 says this shale field could hold more oil than the combined reserves of Chevron, ConocoPhillips, and Royal Dutch Shell…
“Geologists have discovered at least 300 spots where oil and gas are bubbling at the surface.
“These two companies (both trading below $10 a share) control over 5,000 square miles of the emerging oil field… and production has already started….
“On the North Island of New Zealand — about 268 miles from Auckland — sits the small town of Hastings.
“For decades there’s been nothing remarkable about this small port town… until now.
“Massive oil deposits surrounding Hastings have been found that are 10x larger than the infamous Bakken oil field.
“And the major permit holders to these deposits are two companies that I’m about to detail for you today….
“The Kiwi Nation’s Billionaire Dreams
“The geographical similarities between the Bakken and East Coast Basin are striking.
“And the government can already see the dollar signs.
“The Taranaki Basin on the North Island is already under development. So it’s clear the officials there are embracing fracking as a tool to their economic growth.
“‘I would love to see other regions experience the same economic boost, and fracking is one of the technologies than can allow that to happen.’ — Energy and Resources Minister Phil Heatley”
So … you can probably insert your own cautionary notes here: Every oil formation is different, there’s no guarantee that this shale oil will produce like the Bakken, the people of New Zealand might rise up against fracking, these are probably small companies without a lot of wherewithal to survive disappointing results, etc.
But that said, let’s see what Dehaemer’s clues are and try to ID the stocks for you. Here we go:
“New Zealand Bakken Opportunity #1
“The first opportunity you need to act on is an explosive growth stock that holds extensive amounts of oil and gas-laden land all over New Zealand.
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just click here...“The last time they released news that they acquired new land for drilling… their stock shot from $.58 to $3.59 — a stunning 518% gain in just three months!
“They already control over 200,000 acres in the Taranaki Basin that hold nearly 78 million barrels of oil….
“They are snatching up land in the oil-rich East Coast Basin at a breakneck pace. Right now, they have the drilling rights to over two million acres. You didn’t read that wrong: Two million acres of land that are literally leaking oil everywhere.
“That’s huge! And it’s exactly what is going to shoot their share price into the stratosphere.
“They are slated to start drilling in an oil seep region of the East Coast Basin any day now…
“And when they hit oil, all hell is going to break loose with this company’s share price.
“… Their reserves are estimated at a stunning 22 billion barrels of oil by an independent research firm…
“Right now their stock is trading for less than a buck. This is a tiny company. But when they start pumping oil out of the East Coast Basin, their shares could easily balloon to $27 a share, according to some analysts.”
So … hoodat? Thinkolator sez that we are almost certainly looking at New Zealand Energy here (NZ.V in Canada, NZERF on the pink sheets). Yes, the same one teased by Keith Schaefer last Fall — though back then it was around $1.50 (stabilizing there briefly on the way down from $3.50 or so), and now it’s right around 35 cents.
When it comes to matching clues, New Zealand Energy did not trade at 58 cents on the Venture exchange before rising to $3.59, as far as I can tell — the lowest price between their 2011 IPO and the spike in 2012 was around 80-90 cents. But it did rise to close at $3.60 early in 2012, and it has certainly been well below 58 cents since then … and pretty much everything else is a spot-on match. Their holdings in the Taranaki Basin, which is on the west side of the North Island and is where pretty much all New Zealand oil and gas production has been taking place for decades, does indeed have “best case” resources of just under 78 million barrels (77.1 “Net Unrisked Prospective Recoverable” million barrels, per their latest presentation), and a lot more potential oil and gas that hasn’t been discovered. They recently invested more in this producing area, picking up some assets from Aussie giant Origin Energy (and perhaps further stressing their balance sheet, which, in addition to recent bad drilling results, seems to be part of the reason the shares are down).
The “New Zealand Bakken” bit, though, refers to their search for unconventional oil on the east side of the island — that’s where the 22 billion barrels number starts getting thrown around, though even a consultant shouldn’t be putting the word “reserves” next to that 22 billion, that’s what they have on their estimate as “Net Unrisked Undiscovered Petroleum.”
And it should perhaps be obvious, but I’ll say it anyway: “Undiscovered” oil is not as useful, nor nearly as valuable, as oil that you’ve found and can produce.
I’m certainly no expert on New Zealand oil, but this strikes me as now becoming an extremely levered play on New Zealand discoveries — they’ve made an acquisition to increase their current production from the Taranaki basin, an area where the ongoing search to replace dwindling large gas fields is certainly underway, but the market is giving them essentially no credit for that conventional oil and gas production, the market cap is down to about $40 million now, very, very small and not much more than they agreed to pay for the Origin Energy fields they’re trying to buy (they’re also using a line of credit for that, apparently).
That’s probably largely because they’ve rescinded their production guidance this year after having several wells disappoint (the four they’ve drilled this year have resulted in one “waiting for artificial lift analysis”, two dusters, and one with “completion pending” with “good hydrocarbon indications” … which is not what investors were looking for after they had hit on a few successful producing wells in a row. You can see the latest from them in their corporate presentation here or their latest quarterly press release here (both are from last month) — they have a lot of exploration blocks and some other assets, including the production equipment, they are producing from some of their conventional wells, but they’re running pretty low on cash and have a lot of exploration work to do before (if) they book any big reserves, particularly on those possible “New Zealand Bakken” assets. Production grew a lot in 2012 as they brought their first wells online, but that lack of production guidance for this year raises, it seems to me, some questions about how fast they’re going to burn through their relatively small pile of remaining cash — they spent about $40 million last year in exploring and acquiring blocks and equipment, and brought in $16 million in revenue, but the production did grow throughout the year so without guidance I wouldn’t want to guess what their production or revenue will be for 2013.
One thing they did that was clearly quite brilliant was raise a lot of cash when the shares were at $3 — that’s why they have some financial wiggle room — but I think they’ll need some production or exploration success pretty soon to get any recovery in the share price over the coming months. On the flip side, the stock is so beaten down, getting down close now to the value of their proven and probably reserves, that any success could certainly drive the shares higher very quickly. I expect there are probably some Gumshoe readers who follow this one more closely than I, so feel free to chime in if you’ve got some more details or prognostications to share.
And the second “New Zealand Bakken” stock? Here are our clues:
“New Zealand Bakken Opportunity #2
“Not to be outdone is my second New Zealand Bakken opportunity…
“This company — trading at just over $4 — has been involved in the New Zealand energy market for over 11 years.
“Just like our first opportunity, this company has been fracking in the Taranaki region of the North Island. Their property there holds over 600 million barrels of oil and 7 trillion cubic feet of natural gas!
“They also own and operate 100% of all their facilities… including the pipelines….
“It’s paid off: They saw a 227% increase in production during 2012. And in 2012 revenue increased 228%, right along with production….
“they went on an aggressive land-buying spree… to the tune of 1.7 million acres! That’s an area bigger than the state of Delaware.
“They did what they needed to and grabbed as much land as they could. And it was all around the oil seeps in the East Coast Basin.
“They believe there is up to 14 billion barrels of oil there.
“At the $100 per barrel they can command for their premium product, their revenues are about to soar.
“They’re currently trading at just over $4 a share — but they won’t be for long…
“They’re about to drill four test wells in the East Coast Basin any day now.
“When news of their success gets out, I fully expect their shares will shoot up to $35, maybe higher… good for a whopping 775% winner!”
So though that sounds quite sexy, indeed, a gain of 775% is far less than the moonshot gains teased for New Zealand Energy — which makes sense, because here, according to the machinations of the Mighty, Mighty Thinkolator, we’re talking about a profitable, decent-sized (~$300 million) company called TAG Oil (TAO in Toronto, TAOIF on the pink sheets).
TAG Oil is over $4 a share, right around $4.85 at the moment (it’s down a bit today, it’s been over $5 for most of the month so far), the 14 billion number is in their data — that’s the “best case” number for their “undiscovered resources”, which are almost all in the unconventional shale plays to the East — though, like New Zealand Energy, they are actively producing oil and gas in the Taranaki region. Unlike New Zealand Energy, they are profitable and have no debt, so the exploration programs to potentially tap into that “New Zealand Bakken” seem to me, at just my first blushing glance, to be much more immediately feasible for TAG than for New Zealand Energy (even if the acreage or “undiscovered resource” is a bit smaller).
TAG Oil is in the process of drilling their first exploratory wells in the East Coast Basin (that’s the “Bakken-like” shale part), and it sounds as though the drilling has been challenging but there are no real results yet. They did have a farm-in partner, Apache (APA), on these blocks, but Apache backed out this year and paid them off with a lump sum — I don’t know whether that’s an assessment by Apache that the project isn’t going to work, or that it simply didn’t fit in with their investment priorities (the company, of course, says the latter). Regardless, they say they’re funded for the four-well drill program in the East.
They’re also continuing to expand production from their larger finds in the Taranaki basin, where they also own much of the infrastructure and pipelines and can get the oil, gas and condensates to market — so they seem to be clearly the more stable of the two. They also certainly have some big upside potential if those unconventional shale plays turn out to be worthwhile — if they get a technique or a system or the right kind of fracking or whatever is needed to release that oil. And yes, fracking is used in New Zealand and has been for many years, though it is politically fraught — New Zealand’s government seems to approve permits for oil and gas as much as they can, given their strategic focus on growing that industry (which is already substantial, including some large offshore finds) both for internal consumption and for export, but I don’t really know New Zealand at all and I assume that could change. There are other players in the New Zealand energy patch, including some of the global majors and a smattering of others ranging from the decent-sized New Zealand Oil & Gas (NZO in Australia or New Zealand, NZEOY on the pinks) to the teensy Marauder Resources (MES in Canada, MESNF on the pink sheets), and many more that are partially or significantly focused on New Zealand (there’s a good list at the local petro association here), but none match our clues as well as these two … and I don’t think anyone else has as big a bet placed on the East Coast unconventional stuff, at least not that I’ve seen.
So that’s what I can offer you for now — looks pretty clear to me that the Thinkolator’s on target in pegging TAG Oil and New Zealand Energy as the two plays being teased by DeHaemer, and he has picked some good early exploration stories before (and some bad ones, of course). Will these really create a business on the scale of the “next Bakken?” Well, we’re very early in the game for that call — but drill bits are spinning and I expect we’ll be hearing (and seeing both stocks move) on the results of their unconventional shale exploration this year. I’ve never bought a company in New Zealand or a foreign shale explorer (well, unless Quebec counts — and that dabbling didn’t work well for me) … so let us know what you think with a comment below.
Thanks Travis for a interesting article. I have been following a few companies in New Zealand. There is a lot of black gold down under. If any of your readers likes oil and New Zealand, they should take a look at KEA Petroleum on the UK AIM stock market. Only a tiny company, but they have found oil and soon to go into production. I see them as a good multi bagger. But as always any one interested should do there own research…Keep up the good work, the thinkolator is a great piece of kit
You hit the money, it is Tag Oil. I have been following Tag for six years and although small they have done a good job of oil exploration and building out the infrastucture to deliver the convention oil discovers to date. The conventional oil cash flows should enable them to fund the shale work on the two million acres land postion. I am waiting for confirmation of the first shale wells before committing a larger amount of capital to this play. I think Apache backed out of the deal simply because they had too many other plays going and had to focus on their best plays. With Apache out of the picture Tag gets back the 50% of any production thta would have gone to Apache, however they now also hold all the risk. There is oil down there the real question is how much can the wells produce. If they can get good production off the first well I would think that is the all clear to invest. Better to be safe than sorry. Calvin Smith
An interesting article, especially as a Kiwi myself. Oil & gas is a promising sector in NZ – if I recall correctly it is about the 4th largest export earner for the country, and the expectations are for significant growth over the coming years (including in the East Coast area). Thus there appear to be good opportunities for companies that are well placed (and/or lucky). Regarding the tease itself though, some quick googling came up with a few tidbits that interested readers may wish to keep in mind:
– The NZ Herald (daily newspaper) report the teaser quotes (“it’s literally leaking oil and gas”) is actually a report of a Tag Oil presentation. The full quote is: “The East Coast basin is “literally leaking oil and gas” and provides potential for thousands of wells, an oil company with exploration permits in the area says” (http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10778903)
– The same article finishes with a quote from the Labour party (more or less equivalent to the Democratic party in the US): “This is not where New Zealand’s economic future lies. We need to be investing instead in renewable solutions,” says Moana Mackey, Labour’s Energy representative”
– Without looking at their accounts, I doubt very much that Tag has been on the teased “aggressive land-buying spree… to the tune of 1.7 million acres”. That would be approximately 2.5% of the entire country’s land area. Average farm land values in NZ are around 5500 USD per acre in 2012 – at that price 1.7 million acres would be worth in excess of 9.5 billion USD. Even assuming not all the land is priced at farmland prices, this is a rather substantial sum.
– I assume therefore that Tag and NZE have obtained permits for the land. Tag’s website actually confirms these are exploration permits, which as their name suggests gives the right to explore on land in a “block” or area (http://www.nzpam.govt.nz/cms/pdf-library/petroleum-publications/petroleum-guide)
– Actual production will require a production license. Before work can begin, any land-based activity (such as fracking) will require consent under the Resource Management Act. Activities that have more than a “minor effect” are publicly notified under the RMA and the consent process is public and participatory (that is, a production license is not automatic).
Thanks Gavin — good to hear from a local, and those are good points to consider (not just in New Zealand). Yes, TAG did go on a “buying spree” — but it wasn’t necessarily for land ownership — that’s true of US drillers, too, including the Bakken folks who buy oil exploration rights in exchange from royalties but don’t actually buy the land on top from the ranchers. I assume most of the exploration, including the new blocks being offered this year, is on government-owned land, since a lot of them are in less-inhabited areas or offshore, but haven’t looked into those details. Do New Zealand land owners own their mineral rights? Or do they belong to the govt/people as in Australia?
Hi Travis, not sure of the land ownership, but my expectation is that it will be a mix of Crown- (i.e. Government) and Maori- (the indigenous people of NZ) owned land, with some private land thrown in (especially in the permitted blocks around Gisborne/Hastings). In terms of mineral ownership, the NZ government owns all petroleum resources (and gold, silver and uranium) as in Australia.
One other point to consider here is political risk – in general in NZ mining and other extractive industries have proved controversial, with a bit of a right/left for/against split. The current Government is much more pro, but the opposition Labour & Green parties are significantly more cautious. This is not to say extraction activities are impossible, just that there are some hurdles to overcome beyond finding the stuff.
Yes, it seems unlikely that they have actually bought the land. In fact the 1.7 million acres seems to be on and offshore the south island, not in the east coast north island region that the ‘tease’ appears to focus on. There is some confusion there too as the reference is to ‘fracking in the Taranaki basin’ – the company’s website says it is pursuing unconventional resource potential in the East Coast Basin, not in Taranaki in the west where conventional production is concentrated. Questions remain!
From my quick look I don’t remember TAG having any exploration blocks offshore the South Island (there is a focus on offshore exploration on the South Island as well, but I believe that all production in New Zealand currently is in the Taranaki basin on and offshore the North Island). I think TAG’s assets (and certainly all their resources and reserves) are all onshore on the North Island, the Taranaki stuff and the unconventional East Coast stuff.
Yes, production is north island based. My comment about the 1.7 million acres should perhaps have said ‘much of’. The website refers to 1.2 million acres Oamaru onshore/offshore and 246000 acres ‘Marlborough frontier’. Both described as ‘exploration’
Not sure how important this is really, but it doesn’t quite seem to tally with the story in the ‘teaser’
Cheers
Alan
With the price of oil projected to drop in the 60-70 dollar range. What is their break even price and what is their profitable price. If they need oil to stay in the 80-100 dollar range to be profitable they are in trouble. A lot of these small oil company’s will not be able to survive if the price of oil drops below 70 dollars. IMO.
They get very high netbacks with their own production and a premium to Brent pricing. I really doubt oil will go down that low. If it does, it wouldn’t stay down for very long because oil companies would be shutting wells down left and right and many of the smaller companies would drop like flies.
I have held TAG off and on for several years, made some money, and had huge gains before the recent commodities downdraft. TAG has released news in the past couple of days : (see partial text below)
TAG Oil Ltd. (TSX: TAO) and (OTCQX: TAOIF), reports that TAG’s 100%-controlled Ngapaeruru-1 exploration well has reached a total depth of 1417 meters after successfully drilling through the Waipawa and Whangai source rock formations, the main objective of the well.
Excellent mud gas shows – which indicate the presence of gas zones or soluble gas in oil – were recorded between the intervals of 1140 – 1295m (155m gross hydrocarbon column). Preliminary gas ratio analysis interprets a predominantly wet gas / oil signature. All data has now been forwarded to independent laboratories for expert analysis.
The stock fell a bit on this news which suggests it wasn’t as good as hoped for.
They also sold shares in a NZ utility in exchange for shares in a company called Coronado.
TAG supplies gas to the utility.
thanx
I lived in Aus for 20 years,and traveled to New Zealand for business several times a year.If you think California folks are protective .No drilling,green everything. New Zealand people are very green,and very protective of their beautiful country.It will take years to get the approvals required for drilling their new potential shell plays.
On May 28 Tag dropped substantially from 4.97$ to 3.57$.
Any news?
A sudden drop to $3 a share is the result of 2 incidences; Apache left for unknown reason and sold shares for shares in Coronado. It may even dip below $3.
Thanks for all the really good points, but if you were to pull the trigger on either Tag or NZERF which one would you guys pick???
Just received the tease and as often the case came here for clarification. Thanks Travis for the great service. Should i admit that at times I’ve subscribed for the special reports, then canceled for a refund. Huge pain in the patuttie. I would think the TAG play would be bet since its seems a real company. Has now dipped below 3 and is near 52 week low, down 3% today. Any news?
stock gumshoe sounds great.best i ever heard.thanks i like tag.
You may want to look at East West Petroleum as a leveraged play on Tag with huge upside in Romania. It’s market cap is under $25 million, they have nearly that much in cash and equities and Tag has joint ventured with East West on 9 of their next 12 wells. It stands to reason that Tag as the operator on the JV knows what they’re doing and they do have a 90% plus hit rate out there. If East West can piggyback off Tag’s New Zealand expertise to get into production and then have any success with their JV in Romania, there could be pretty good upside. At .26 cents Canadian it’s a pretty decent speculation and with drilling starting soon in New Zealand, there are good catalyst moving forward.
I LOOKED IN NEW ZELANDS SHALE OIL COMPANIES AND COUD NOT GET EXCITED AND WOUND UO BUYINEG US CO TPLM tRIANGLE PETROLEUM CO AT 1:00 CST JUNE 28 TRADING AT $708 +0.28
I am going to go way out on a limb here and guess that you are neck deep into this stock and want to see its share price rise so you can turn some gains? Casey’s Research has about a 99.9% falure rate, Just sayin…
I own 100 shares of TPLM I am retired an only have limited amont to invest.To-day I bought 300 sh of KOG. I am loking for a 10 bagger since I am 86 years old and need fast action
thanks for all the comments will buy East West Petroleum dpleigh
I am still waiting on Tag finishing their analysis of the Ngapaeruru-1 exploritory well data, If they go ahead with a horizonal well and get good results it will be a good long term investment. Calvin Smith
But Robert, I don’t notice any comment about Casey research in the other posts. Why did you wrote about Casey?
But Robert, why did you mention Casey?
from what I have read,it is costing NZERF 73.62 USD per barrel to produce PLUS a 5% royalty to the New Zealand govt which comes out to 22.46 per barrel profit IF oil is selling at 100.96 a barrel average…I have read that due to high production rates in north America,average price per barrel is set to fall to around the 86.00 dollar range in 2014…which means 8.00 USD profit per barrel if everything else stays the same this company is finished UNLESS they can bring down production costs I may buy a few shares on a dip on the hope they can get production costs down/their new blocks pay out
Moriarty is convinced that TAG has a bunch of stuff underground. And Marauder is the ham in the sandwich. If TAG pops, Marauder will moonshot.
Location location location , there is a reason China gets there feet wet in other parts of the world, something is just not right with the picture that Asia has not swallowed up the down under, I am sure the need will arise when the America’s realize that . I have a difficult time wondering what really will catch the eyes of the user, certainly transportation has not, or has it with Mr Green Jeans/ subsidies. Like the new agreement / law between S. Korea and China as far as import export goes between them, the US Dollar is not accepted only the Chinese Yuan or Gold, and 8 other countries are meeting to sign the same agreement, no US Dollar and part of the 8 other countries the US does not have Military bases in. China is not a sleeping giant nor are some of there friends or are they ? Refineries and the Gulf coast of Fla. Panhandle all the way to Corpus Christi TX. right through the US Strategic petroleum reserve, much more than meets the eye there, and OPEC is losing ground everyday or are they. I really believe product will be the easy part of the equation, lot easier to drill than infrastructure and processing product, in the US it is all of 7+ years just to get permits for refining or mining while Australia, Canada, etc. are at the 2 year range for now. Look at the Bakken in N.D. on Canada border and than look at Warrens Rail Road and Canada’s RR nice stock and the Politics of pipelines and refineries makes Ports and Ship’s and not the fishing or the Carnival cruise kind look pretty good for the long run , it will be interesting to see how it plays out.