Kea Assets

Taranaki Basin Assets

In October 2009, Kea Exploration acquired two exploration permits, namely PEP 51153 and PEP 51155, in the onshore Taranaki Basin by way of an assignment from the Joint Venture Consortium. The Joint Venture Consortium was awarded the two permits by the Ministry of Economic Development following a competitive bidding round in September 2008. In July 2010 a further permit PEP 381204 was acquired from Genesis Power Limited and approved by the Minister of Energy. In October 2010 PEP 52333 and 52200 were granted to Kea Oil and Gas. In October 2011 Kea Petroleum relinquished the permit PEP 52200.

The onshore Taranaki Basin is home to Australasia’s largest onshore oil field at McKee, Australasia’s highest onshore flow rate wells at Waihapa and at least two gas-condensate fields, namely Kapuni and Mangahewa. The third offshore well drilled in New Zealand discovered the ‘giant’ Maui gas-condensate field in 1969. More recently, oil discoveries have been made offshore with the Tui and Maari fields along with the Kupe and Pohokura gas discoveries.

Exploration Permit PEP 51153

PEP 51153 lies in the eastern central part of the Taranaki Basin. The permit covers an area of 210.8 km2 and was granted to the Joint Venture Consortium on 23 September 2008 for a term of five years. The permit interest held by the Joint Venture Consortium has since been transferred to Kea Exploration. The assignment of PEP 51153 together with PEP 51155 (as described below) was made pursuant to a deed of assignment entered into between the Joint Venture Consortium and Kea Exploration in July 2009. The assignment of PEP 51153 was subject to the consent of the Minister of Energy in accordance of s.41 of the Crown Minerals Act 1991. The parties duly applied for that consent, which was granted on 6 October 2009 whereby the assignment became unconditional in all respects.

The permit provides for a five year minimum work programme with the option to apply for a further five year period. Within 21 months of the commencement date of the permit which was 23 September 2008, the holder is required to reprocess 200 kilometres of existing 2D seismic data, acquire and process a further 20 kilometres of 2D seismic data, carry out geochemical sampling and drill one well.

Within 36 months of the commencement date of the permit there is a requirement to incorporate the results of the first 21 months of work on the permit into a permit review report and make a commitment to either drill a further well or acquire further seismic data to the equivalent value of a second well within 48 months of the commencement date of the permit.

Within 60 months of the commencement date of the permit, the permit holder is required to carry out further geochemical sampling and geophysical evaluation and, to the extent a second well has not been drilled in year four, drill a second well.

There are options to surrender the permit during the five year term with no additional cost implications for the Group.

There have been six wells and 600 kilometres of 2D seismic data acquired in the permit by previous operators of the area covered by PEP 51153. The most promising well was Wingrove-1 which tested 50 bopd of waxy oil, limited by poor completion. The well recorded very good oil shows in the Kiore, Urenui and Mount Messenger sands.

Wingrove-2 Appraisal Well

Wingrove-2 reached its Target Depth of 1630m in April 2010. Wingrove-2 a deviated well designed to test the updip potential of the good shows seen in the basal Mount Messenger (Mako Sands) in the previously drilled Wingrove-1 well referred to above).

In July 2011 the initial flow testing of Wingrove-2 was terminated after the flows of oil and gas were not sufficient to be economically viable.

Exploration Permit PEP 51155

PEP 51155 lies in the north central part of the Taranaki Basin. The permit covers an area of 262.6 km2 and was granted on 23 September 2008 to the Joint Venture Consortium for a term of five years. The permit interest has since been transferred by the Joint Venture Consortium to Kea Exploration. The assignment of PEP 51155 together with PEP 51153 (as described above) was made pursuant to a deed of assignment entered into between the Joint Venture Consortium and Kea Exploration in July 2009. The assignment of PEP 51155 was subject to the consent of the Minister of Energy in accordance of s.41 of the Crown Minerals Act 1991. The parties duly applied for that consent, which was granted on 6 October 2009 whereby the assignment became unconditional in all respects.

The permit provides for a five year minimum work programme. Within 20 months of the commencement date of the permit (which was 23 September 2008), the holder is required to reprocess 200 kilometres of existing 2D seismic data, acquire and process a further 25 kilometres of 2D seismic data, carry out geochemical sampling and make a commitment to drill one well within 32 months of the commencement date of the permit. Within 38 months of the commencement date of the permit there is a requirement to incorporate the results of work on the permit into a permit review report and make a commitment to either drill a further well or acquire further seismic data to the equivalent value of a second well within 48 months of the commencement date of the permit.

Within 60 months of the commencement date of the permit, the permit holder is required to carry out further geochemical sampling and geophysical evaluation and, to the extent a second well was not drilled in year four, drill a second well.

There are options to surrender the permit during the five year term with no additional cost implications for the Group.

There have been four wells and approximately 300 kilometres of 2D seismic data acquired in the permit by previous operators of the area covered by PEP 51155.

Beluga-1 Exploration Well

The Beluga-1 exploration well spudded on Sunday 9 May 2010 and was drilled to a depth of 4,100 metres. The well intersected the main Tariki sands target below 3,500 metres at a point that the Directors believe was closer to the updip pinch out and that the net gas pay of approximately 11 meters does not fully reflect the potential of the reservoir as a whole. The well location appeared to be sub-optimal and the likely production from the thinner sands may not justify hook-up and sales to Methanex New Zealand.

The well has established two future objectives both of which could be accessible from a relatively short side-track: down dip to the east, Tariki Sands are expected to thicken, with improved reservoir quality, while updip to the south, Mangahewa Sands appear to form a closed structure that could also trap gas.

The Beluga-1 well was suspended at the 7 inch casing shoe, several hundred metres above the Tariki Sands and the rig was demobilised from the site.

The Beluga-1 well was fully financed by Methanex with a back-to-back 15 year gas offtake agreement that envisages the sale of up to 90 billion cubic feet per annum. Methanex is supportive of the Company’s decision to suspend the well and to conduct further analysis for a prospective deviation.

Exploration Permit PEP 381204

PEP 381204 is an onshore/offshore area of 516 km2, situated on the eastern margin of the North Taranaki Basin. Over recent years the area in which PEP 381204 sits has been the focus of a number of exploration wells, with both previous wells within PEP 381204 and all immediately adjacent wells recording good oil and gas 'shows', indicative of this being a focus area for hydrocarbon migration.

Kea acquired a 100% interest in the permit from Genesis Power Limited, a wholly owned subsidiary of New Zealand Government owned Genesis Energy. Under the terms of the deal, Kea will pay Genesis’ past costs incurred on the permit out of future revenue generated from the permit, and Genesis will hold a first right of refusal to purchase a portion of gas discovered in the permit.

Over the last three years, Genesis Energy has significantly advanced the available technical data base for the area, with a range of studies and the acquisition of extensive onshore to offshore transition 2D seismic. However, further technical evaluation is required to better define and rank the identified prospects and leads, before a decision is taken as to the preferred initial drilling target. Within the permit area the deep Mangatoa Prospect has long been identified as a potentially substantial gas target, but it requires further depth mapping to better define its form. However, the shallower Felix and Waikawau Prospects are considerably cheaper and more accessible to drill, and offer substantial opportunity for both oil and gas discovery.

Both the Tirua-1 well, originally drilled by Arco within the permit area, and the Awakino-1 well, situated just south of the permit, recorded excellent oil shows in Miocene sandstones; while Opito-1, drilled from an onshore location now within the PEP 381204 permit area, intersected deeper gas sands down dip from the Felix trap.

The directors of Kea consider that a well drilled from an onshore location north of Opito-1 could be readily deviated offshore to test this gas sand and deeper sands within the Felix trap, while also testing the oil bearing potential of the Miocene sands, which were not intersected by the Opito-1 well.

Mauku-1 Exploration well

In October 2011 Kea announced that Methanex were to finance 50% of the cost of the planned Mauku-1 well in permit PEP 381204, budgeted at US$11M. The Mauku-1 well will initially be drilled to a depth of 3400m from an onshore location to test for gas in the Mangahewa Formation, a stacked sandstone interval with a gross thickness of approximately 600m, which forms the reservoir in Shell’s Pohokura gas field, along trend about 60 km to the south. Pohokura is presently the major producing gas field in New Zealand, with a well stream containing high levels of condensates; and in the event of discovery the Directors believe that Mauku production could potentially have a similar composition.

As an initial stage, the top 1000m of the Mauku-1 is planned to be drilled with a small rig in January 2012, and the Directors believe there is a possibility that shallow oil-bearing Miocene sandstones may be intersected in this pilot hole. In mid 2012, subject to rig availability, deeper exploration will follow.

Northland Basin

The Northland Basin is a northern continuation of the prolific Taranaki Basin. Seismic mapping shows that the two basins are contiguous, with sequences and seismic characteristics extending from the Northern Graben of the Taranaki Basin into offshore Northland.

Exploration in the Northland Basin is in its infancy. It is considered by Crown Minerals to be one of New Zealand's most prospective exploration theatres, yet it is one of the least explored. There has also been an increase in interest in this frontier basin with two wells scheduled to be drilled by Origin Energy in the coming months. New seismic data and geological interpretation of the region indicate strong geological fundamentals in this extension of the oil and gas producing Taranaki Basin. Reservoir sequences are unknown in the onshore and near offshore due to a lack of drilling. However, at least some of those reservoir sequences seen in the Taranaki Basin are expected to be intersected here as well. The same can be said for the seal sequences.

Exploration Permit PEP 51339

PEP 51339 lies in the onshore part of the Northland Basin just north of Auckland along the west coast of the northern North Island. The permit covers an area of 2,157 km2 and was granted to Kea Exploration Limited on 3 September 2009 for a term of five years.

In October 2011 Kea relinquished permit PEP 51339.

Exploration Permit PEP 52333

PEP 52333 is an onshore/offshore area of 232.5km2, situated on the eastern margin of the North Taranaki Basin and was granted to Kea Oil and Gas Limited on 13 October 2010 for a term of 5 years.

The permit provides for a five year minimum work programme. During the first 12 months of the grant the holder is required to reprocess a minimum of 400km of 2D seismic and to complete a technical study investigating the reservoir characteristics. Within 24 months, there is a requirement to acquire 100 km2 marine 3D seismic and within 36 months detail an offshore drilling location. Within 48 months the permit holder is required to drill an exploration well to a minimum of 2,500m and within 60 months acquire a further 100 km2 of 3D seismic or drill a further exploration well.

The new permit contains the Mercury Prospect, a turbidite sand target originally mapped some twenty years ago by a Shell consortium, which at that time calculated an upside resource potential of 435 million barrels of oil, with a median resource potential of 16 million barrels of oil. The Pluto-1 well, drilled about one km north of Mercury by the Shell consortium, has extensive oil shows at the target Miocene sands level near 1300m depth.

PEP 38524 (10% interest)

AWE Farm-in

In May 2010 Kea Petroleum entered into an agreement with AWE New Zealand Limited to acquire a 10% participating interest in PEP38524, an offshore area of 2,469sq km situated near the northern end of New Zealand’s South Island. An exploration well, Tuatara-1, was drilled on PEP38524 in July and August 2010 by the Kan Tan IV rig. The Tuatara-1 location is in water depths of approximately 50 metres and lies some 15km from shore.

The well was drilled to a total measured depth of 1,911 metres during which minor oil shows were intermittently reported over the interval 1,790-1,850 metres. In August 2010 the well was plugged and abandoned as no zones of economic potential had been identified.

In October 2011 the company relinquished its interest in PEP 38524, along with all other parties to the joint venture.

EXPLORATION PERMIT PEP 52200

PEP 52200 is an offshore area of 184.1 km2 situated about 10km from shore in the South Taranaki Bight, and granted to Kea Oil and Gas Limited on 22 October 2010 for a period of 5 years.

The permit provides for a five year minimum work programme. During the first 12 months of the grant the holder is required to reprocess a minimum of 400km of 2D seismic and to complete a technical study investigating the reservoir characteristics. Subsequent to this processing the company decided in October 2011 to relinquish the permit.

Australian Assets

In March 2010 Kea entered into an agreement with Energetica Otway Pty Ltd and Rawson Otway Pty Ltd to earn a 50% interest in the ATP 837P licence are in Queensland’s Surat Basin. In June 2011 Kea spudded the Hoadleys-1 well targeting the Precipice Sands at a depth of 2,148m. In July 2011 the well was terminated as the sands were water bearing with no oil shows.

The well was cased and suspended and a review is currently underway to assess the prospect of deepening the well to target a deeper South Cabawin target. The South Cabawin is defined on 3D seismic as a similar structure to the Cabawin Field, 20km north along trend where the discovery well averaged 120 barrels of oil and one million cubic feet of gas per day in a 22 day flow test.