TAG Oil plans to spend $21.5 million on its East Coast drilling and testing three wells in the 2015 financial year.

It represents one third of the Taranaki-based Canadian oil company's capital expenditure to March 31 2015.

TAG CEO Garth Johnson said a new well would be drilled in Gisborne, one in Hawke's Bay and an already-drilled well east of Dannevirke would be tested.

"Our original plan to test Ngapaeruru-1 quickly after we drilled it was revised so we could drill a couple more wells this year and then test them all, if warranted, on a back to back basis," he said.


"Technically, nothing we learn from a one-well test at Ngapaeruru in the short term would alter our plans for our next East Coast wells."

The first well will be Waitangi Valley-1 in Gisborne.

"This is a fantastic well. It is well documented as being in close proximity to the Waitangi Oil ponds and the original shallow Waitangi-1 well drilled in the early 1900s that still produces oil and gas today.

"The oil from Waitangi-1 has been scientifically confirmed as being generated in the underlying source rocks of the East Coast Basin, proving the oil kitchen is working. Waitangi Valley-1 will be drilled to a depth of approximately 3600m and provides a shot at the unconventional source rocks and a deeper basinal setting than Ngapaeruru 1 did while also providing an interesting conventional opportunity as we drill through a number of Miocene-age sands that are very similar to what we produce from in Taranaki. After Waitangi Valley drilling operations move to Boar Hill-1 near Porangahau.

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"Consent applications will be submitted shortly to drill a well to approximately 3400m. Boar Hill has been a top choice for our drilling programme for many years due to conventional and unconventional opportunity the prospect provides TAG."

He said Tag's East Coast permits have had independent estimates of 14 billion barrels of undiscovered oil initially in place within just under 20 per cent of the company's permitted lands. "So this programme is a big step toward our goal of proving we can commercially flow hydrocarbons from the source rocks."

TAG's Chief Operating Officer Drew Cadenhead said gathering data was more important than perforating wells to see what flows.


"If a well has the ability to produce, believe me, we'll produce it. But certainly the key to this programme and any unconventional programme at the start of the programme that we're in is to gather data," he said.

"As much as everyone would like to see us complete and perf the well as soon as possible, it makes more sense for us in the data gathering mode to put two or three wells together.

"We have to mobilise an entirely different set of equipment over to the East Coast to test these wells.

"We need production equipment and vessels and testing equipment that sort of thing - different rig, everything. So it's not just a matter of, once you drill it poke some holes and see what happens.

"It's a completely different operation that needs a completely different set of equipment. So we're going to move ahead and certainly drill these wells.

"Hopefully, we'll see something encouraging at Waitangi Valley and Boar Hill that will encourage us to case the wells and then plan the further testing that's going to happen all at a single time, most likely later in our fiscal year."

TAG's capital budget is funded by forecasted cash flow from its Taranaki wells and working capital on hand.

It is listed on the Toronto Stock Exchange, the world's largest oil and gas public market and seventh-largest exchange.

In April a former TAG Oil production manager was found guilty in the New Plymouth District Court of stealing valuable information about oil and gas finds in Taranaki, seven weeks before starting a new job with opposition oil company New Zealand Energy Corp. Canadian James Winston Watchorn was found guilty of three counts of dishonestly and illegally taking information from TAG's computer system on June 7, 2012.

New Zealand Energy Corp has Taranaki and East Coast, including a 1000sq km Wairoa permit in which it expected to drill one well this year.