Tag Oil strike could be 'game changer'

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Tag Oil says the discovery of oil at a Taranaki well could be a "game-changer" for the company.

The Canadian firm's shares jumped by 13 per cent yesterday on the Toronto stock exchange immediately after reporting that its Cheal-B5 discovery well near Stratford flowed naturally at an average rate of 1870 barrels of oil equivalent a day.

The well is the third in a 10-well drilling campaign, and it was drilled, tested and placed on fulltime production in less than a month. Capital costs will be recovered within a fortnight.

The well's production consists of about 1700 barrels of light oil a day and 1 million cubic feet of gas a day over a five-day test period.

"Given the success of our drilling campaigns and the excellent result from Cheal-B5, results indicate substantially more upside potential in the Cheal field than originally anticipated," said Tag chief executive Garth Johnson.

"This result has once again exceeded our expectations and could prove to be a game-changer for Tag's asset valuation and the scope of the company."

Chief operating officer Drew Cadenhead said the field could have a life of up to 20 years.

It not only provided extra cash flow but also allowed for a reserves upgrade.

The company has been in New Zealand for almost 10 years and uses the controversial hydraulic fracturing or fracking technique.

A report by the Taranaki Regional Council last month has found it poses little risk to the environment if done properly.

The Cheal-B5 well is close to the company's production plant and was put on fulltime production.

Oil is taken by truck to New Plymouth for export.

TAG is awaiting approval for a further 18 wells within the Cheal oil and gas field.

A consultant, Len Houwers of Energy Insights, said Tag had enjoyed more success than others on the Cheal field because of more effective data assessment and new drilling techniques.

Although onshore discoveries tended to be smaller than those beneath the sea floor, the oil and gas was cheaper to extract.

New Zealand uses about 160,000 barrels of oil a day.

* Vector on Tuesday announced new agreements with Tag to buy up to 3.5 PJs a year of gas until the end of 2014.