Swift Energy Company 2001 Annual Report: Operating New Zealand Core AreasSwift Energy now has two core areas of operation in the Taranaki Basin of New Zealand’s north island, one known as the Rimu/Kauri Area and the other as the TAWN Area. The Rimu/Kauri Area resulted from the Company’s successful exploration and development of its Rimu prospect begun in late 1999 plus the exploration and initial development of its Kauri prospect in 2001. The initial wells on the two adjacent prospects are separated by approximately 5 miles, and the Company believes that the wells have tapped connecting fields that represent a major multizone discovery. The TAWN Area was added in January 2002 when Swift purchased Southern Petroleum (New Zealand) Exploration, Ltd. (Southern NZ), from Shell New Zealand (Shell NZ). The acquisition provided interests in four producing fields north of the Rimu/Kauri Area, as well as considerable infrastructure. With these two core areas of operation, Swift has become a significant producer in New Zealand’s oil and gas industry. According to the New Zealand Ministry of Economic Development, the TAWN properties alone accounted for approximately 4% of New Zealand’s oil production and approximately 4.5% of its natural gas production during the year ending March 2001. Production from the Rimu/Kauri Area will increase these percentages. Moreover, the Rimu/Kauri Area holds considerable potential for both near-term and long-term growth with production from multiple geological horizons. Such growth is encouraged by the New Zealand government, since the country is a net importer of oil and is facing near-term declines in production from the Maui Field, its major source of natural gas supply.
Rimu/Kauri Area. Swift’s Rimu/Kauri Area is located in New Zealand’s petroleum exploration permit area PEP 38719 in the southern portion of the Taranaki Basin on the west coast of the north island (see map on page 12). This area covers approximately 50,000 net acres, extending both onshore and offshore. In March 2002, the Company increased its interests in the area from 90% to 95% by purchasing a 5% interest owned by a subsidiary of Antrim Energy Inc. of Canada. The remaining 5% is owned by a subsidiary of Bligh Oil and Minerals Ltd. of Australia. Reserves Estimates. During 2001, Swift’s delineation activities, both exploratory and developmental, revealed that the Rimu/Kauri Area is more geologically complex than originally envisioned. Swift believes the area has substantial reserves potential; however, the Company has adopted a conservative approach to booking proved reserves. After reserves corresponding to the working interests owned by others were deducted, Swift’s net year-end proved reserves for the area were approximately 17 million BOE (102 Bcfe), representing a decline of 17% from those reported at year-end 2000. However, the Company continues to believe that this area has long-term reserves potential in excess of 250 million barrels of oil equivalent, or 1.5 trillion cubic feet of natural gas equivalent. To date, the identified reservoirs and potential reservoirs (with oil and gas shows in various wells) in the Rimu/Kauri Area include (starting with the oldest) the Maitai (Permian); Murihiku (Triassic); Rakopi and North Cape (Cretaceous); Mangahewa (Eocene); Rimu limestone and Tariki sandstone (Oligocene); Kauri sandstone and Urenui sandstone (Miocene); and Manutahi sandstone (Pliocene). All of these reservoirs, except the Rimu limestone, are sandstone reservoirs. The Taranaki Basin is located in a thrust belt where the eastern plate of the earth’s crust moved over the western plate. As a result, some hydrocarbon-bearing zones are repeated at certain drilling locations. For example, some of the Rimu wells have found the Tariki sandstones and the Rimu limestones in both the upper and lower plates. Drilling Activities. Through February 2002, Swift had drilled 12 wells in the Rimu/Kauri Area—eight Rimu wells and four Kauri wells (see table on page 14). The initial discovery well, the Rimu-A1 well, was drilled during the fourth quarter of 1999 and was successfully tested in the Upper Tariki sandstone, with additional hydrocarbon shows in the Lower Tariki sandstone and the Lower Rimu limestone. In 2000, the Rimu-B1 and -B2 wells were drilled from a second (B) pad. The Rimu-B1 had hydrocarbon shows in five different zones—the Upper Tariki sandstone, the Upper Rimu limestone, the Maitai metasediment, the Lower Tariki sandstone, and the Lower Rimu limestone—and was successfully tested (in March 2001) in the Upper Rimu limestone. The Rimu-B2 encountered hydrocarbon shows in the Upper Tariki sandstone and the Upper Rimu limestone and was successfully tested in the Rimu limestone. During 2001, six wells were drilled: the Rimu-A2, -A3, and -B3 and the Kauri-A1, -A2, and -B1. Although the Rimu-A2 well confirmed the presence of an Upper Tariki section with high-quality reservoir rock, the section was 300 feet lower than in the Rimu-A1 well and was found to be water bearing. Early in 2002, it was sidetracked as the Rimu-A2A well, again reaching the Tariki sand and currently awaiting completion. The Rimu-A3 well was confirmed to be a producer in the Upper Tariki formation. In addition, logging results confirmed the presence of the Upper Rimu limestone, along with other potential horizons at shallower depths where hydrocarbon shows were encountered. The Rimu-B3 well targeted but failed to reach either the Upper Tariki sand or the Upper Rimu limestone in the upper thrusted section. In early 2002, the well was sidetracked as the Rimu-B3A well and was again unsuccessful. The Kauri-A1 well was initially tested in the Upper Tariki sand, but was temporarily plugged above the sand so that three distinct areas of the shallower Kauri sand could be tested. The Kauri sand consists of 872 gross feet of multiple interbedded sections of sandstones and claystones that yielded good oil and gas shows as the Kauri-A1 well was being drilled. This same interval was also encountered in all of the Rimu wells with varying degrees of hydrocarbon shows, but it had greater sand development and better mud log shows in the Kauri-A1 well. Completion of the Kauri-A1 well is scheduled for 2002. The Kauri-A2 well was drilled to test the shallow Manutahi sand observed in the Kauri-A1 well. The well tested as a successful producer, but sand migration into the well bore limited production rates. To control the sand inflow, the Company gravel packed the well. In late 2001 and early 2002, the Kauri-B1 well, a shallow Manutahi step-out exploratory well, was drilled. Although unsuccessful, it helped to define the field’s boundaries. Also in early 2002, the Kauri-A3 well was drilled and is awaiting testing in the Manutahi sand. Swift’s budgeted development program for the Rimu/Kauri Area in 2002 includes expenditures for two completions, one of which is the Kauri A-1 well, and six development wells, one of which is a deep offset to the Kauri-A1 well. Long-Term Development. Early in 2002, Swift was awarded petroleum mining permit PMP 38151 by the New Zealand Ministry of Economic Development for the development of the Rimu discovery over a 5,524-acre area for a primary term of 30 years. The Company plans to add up to three additional drilling pads in the permit area (for a total of five pads) with each able to handle multiple wells. Nine additional wells are currently planned within the mining permit, one gas injection well and eight development wells targeting the Upper Tariki and Lower Tariki sandstones and the Upper Rimu limestone. The total capital expenditures over the life of the project are expected to be approximately US $80 million.
Rimu Production Station. Early in 2002 Swift completed the construction of its Rimu Production Station near the Rimu/Kauri Area, and regular commercial production from the Rimu wells is scheduled to start following the commissioning of these facilities in March or April 2002. Beginning commercial production approximately 28 months after its initial discovery, Swift will be setting a New Zealand record compared to other companies who have required 4 to 11 years to initiate production. The station is designed to initially handle 3,500 barrels of oil and 10 MMcf of natural gas per day (about 31 MMcfe per day) during its first phase of operation. However, with minimal additional capital the plant’s capacity can be increased to 8,250 barrels of oil and 20 MMcf of gas per day (approximately 70 MMcfe per day) with options for even further expansion. Marketing. During 2001, Swift produced and sold 84,261 barrels of oil from the area while conducting production testing, primarily at the Rimu A and B pads. No gas was sold from the area in 2001, but Swift has an agreement with Genesis Power Limited (Genesis), a New Zealand state-owned enterprise, to provide Genesis with 40 petajoules (approximately 38 Bcf) of natural gas over a 10-year period once the Company begins commercial gas production. TAWN Area. Swift completed its acquisition of Shell NZ’s affiliate, Southern NZ, in January 2002, obtaining 96.76% working interests in four petroleum mining licenses covering producing oil and gas fields located approximately 17 miles north of the Rimu discovery. The properties are collectively identified as the TAWN properties, an acronym derived from the first letters of the field names—the Tariki Field (PML 38138), the Ahuroa Field (PML 38139), the Waihapa Field (PML 38140), and the Ngaere Field (PML 38141). The Tariki Field and Ahuroa Field both produce from the Tariki formation, while the Waihapa Field and Ngaere Field produce from the Tikorangi formation. The acquisition, which also includes hydrocarbon-processing facilities with excess capacity and pipelines connecting the fields and facilities to export terminals and markets, was purchased for US $54.4 million with funds available under the Company’s bank line of credit.
Field Assets. The four fields include 17 wells with an estimated first quarter 2002 net production of at least 900 barrels of oil, 27 million cubic feet of natural gas, and 500 barrels of natural gas liquids per day, or a total net production of approximately 35 million cubic feet of natural gas equivalent per day. The combined fields have a contracted minimum deliverability and serve as a swing producer for the electrical demand market in New Zealand. They are producing considerably under their maximum deliverability, which yields a flat production profile and extends the lives of the fields. Drought conditions, as occurred this past summer in New Zealand, and other gas shortfalls will sporadically increase their production volumes. As of December 31, 2001, the reserves associated with the acquisition were estimated to be approximately 62.1 Bcfe, of which 75% was natural gas. Infrastructure Assets. The TAWN natural gas processing facilities and oil and gas pipelines, together with other infrastructure with current excess capacity, can provide synergies with Swift’s Rimu/Kauri Area. Solution gas gathered from an oil facility, the Waihapa Production Station (WPS), flows to the Tariki Ahuroa Gas Plant. The current processing capacity of the WPS facility is over 15,000 barrels of oil and condensate per day and 40 MMcf of natural gas per day. Natural gas processing can be increased significantly with additional compression. A 32-mile (8-inch-diameter) oil export line runs from the WPS to the Omata Tank Farm at New Plymouth, where oil export facilities allow for sales into international markets. A 32-mile (8-inch diameter) natural gas pipeline runs from the WPS to the Taranaki Combined Cycle Electric Generation Facility near Stratford and on to the New Plymouth Power Station. Swift has a service agreement with a Shell NZ affiliate, the owner of the Omata Tank Farm, to utilize the blending, storage and export capabilities of the facility. Swift and other users will participate in operational planning issues with the operator of the tank farm to maintain or improve the quality of the McKee blend crude oil. All users of the facility will transport crude oil to the farm and receive McKee blended crude oil. The operator of the facility will provide services for a fixed fee per barrel received and other variable costs as required by the agreement. Under the terms of the agreements, crude oil produced from the Rimu or Kauri discoveries will also have access to the Omata Tank Farm. Marketing. Swift entered into a one-year agreement for Shell NZ to purchase crude oil from the TAWN Area using a reference price of APPI (Asian Petroleum Price Index) Tapis, an internationally recognized crude oil index, which is quoted at least weekly. The price will be adjusted for various fees and premiums. The natural gas from the TAWN properties has been sold under a long-term contract to Contact Energy Limited. Swift will continue to produce and sell natural gas liquids under existing contracts. Fiscal terms for the oil and gas reserves call for a royalty payable to the Crown at an effective royalty rate of approximately 10%. TAWN Deep Rights. Swift has offered Shell NZ a 50% interest in the future exploration and development of certain deep oil and gas horizons within the TAWN license areas, with Swift remaining as operator of any future drilling. Shell NZ has until early 2003 to elect to participate. Shell’s Rimu Option. Swift has made the strategic decision to sell an interest of approximately 25% in the Rimu/Kauri Area. Effective with the closing of the TAWN acquisition, Swift granted Shell NZ a short-term option to acquire an undivided 25% interest in PEP 38719, which includes the Rimu Kauri Area, as well as a 25% interest in the Rimu Production Station. Regardless of Shell’s decision concerning the exercise of this option, Swift intends to monetize a 25% interest in the Rimu/Kauri Area during 2002.
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This page was last updated on Saturday, February 08, 2003, at 07:29:00 PM. Copyright © 1994-2008 by Swift Energy Company. |
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