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.

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 square kilometres 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. 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. Seismic reprocessing and geochemical sampling has already been conducted, with more planned for early 2010, while the award of contracts for seismic acquisition in March 2010 is underway.

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.

here 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. [NTD: Dave Bennett to confirm position with MBA]The most promising well was Wingrove-1. The well recorded very good oil shows in the Kiore, Urenui and Mount Messenger sands. Wingrove-1 tested 50 bopd of waxy oil.

Wingrove-2 Appraisal Well

Wingrove-2 is planned to be drilled in the first quarter of 2010. This is expected to involve an anticipated total capital cost of approximately US$2 million to case the well and complete it for production. It is anticipated that oil production could be initiated within three months of a successful discovery, with oil being transported to the export tank farm at Port Taranaki initially by road tanker.

Wingrove-2 is to be 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)

The Directors believe that using improved completion and testing techniques will enhance the production rates for the waxy oil which is expected to be intersected in the sands drilled in Wingrove-2. This is anticipated to enable the production of the oil sands already established by Wingrove-1.

In the event of success in establishing oil production in Wingrove-2, the Directors consider, on the basis of available mapping, that several offset well locations could be drilled without further pre-drilling evaluation, to target the same reservoir sands and increase production and reserves. The Directors intend that in this success scenario, further such drilling will occur during 2010.

Exploration Permit PEP 51155

PEP 51155 lies in the north central part of the Taranaki Basin. The permit covers an area of 262.6 square kilometres 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. Seismic reprocessing and geochemical sampling has already been conducted, with more planned for early 2010, while award of contracts for seismic acquisition in March 2010 is underway.

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 prospect is planned to be drilled from a site to the west of the Waitara River near the township of Tarata. Nearby hydrocarbon gas seeps overly the subsurface accumulations along the Tarata structural high; and Beluga-1 may intersect additional hydrocarbons at levels shallower than its primary Tariki Sandstone target, namely in sandstones of the Mt Messenger Formation and in Tikorangi Limestone fracture porosity.

Beluga’s best estimate prospective resources as estimated by MBA Petroleum Consultants are 446bcf with condensate yield of about 27MMb. This is a comparable size to the adjacent Mangahewa and Pohokura gas fields, where production is obtained from similar depths.

The Directors believe that the Beluga Prospect is potentially of a large enough scale to be capable of fully supplying the demand of Methanex’s New Zealand operations. Furthermore, the prospect is situated within 20 kilometres of the Methanex plants, and only six kilometres from a tie-in to the high capacity LTS gas pipeline, which provides a direct link to the plants. In the event of a discovery at Beluga-1 and after appropriate testing, it is intended to commission the construction of a six kilometre pipeline link which is expected to take approximately one year to complete. On the basis of production rates from offsetting fields producing from the same Tariki Sands reservoir, the Directors believe production from Beluga-1 could potentially exceed 30 MMCFD gas and 2,000 BOPD condensate.

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 square kilometers and was granted to Kea Exploration Limited on 3 September 2009 for a term of five years.

The permit provides for a five year minimum work programme. During the first 18 months of the grant of the permit, the holder is required to undertake gravity and geochemistry surveys and apply the results to existing data for a better understanding of the basin. Within 30 months, there is a requirement to undertake at least 20 kilometres of onshore seismic survey and within 42 months, the permit holder is required to complete additional seismic surveys and commit to drill a well within 48 months of the date of grant of the permit

Initial gravity and geochemistry surveys on the permit area are scheduled for the first quarter of 2010.