TAG spuds in first East Coast exploration well near Dannevirke

TAG Oil, the Canadian oil and gas producer with extensive onshore Taranaki production, says it has spudded in the first exploration well in its controversial campaign to seek oil and gas from "unconventional" shale rock formations on the North Island's east coast.

The Ngapaeruru-1 well, in the southern Hawke's Bay near the town of Dannevirke, is targeting Waipawa black shale and Whangai source rock to a depth of around 1800m and comes after six years of preparation.

The company also has exploration licence permits targeting the same formations further north around Gisborne. A study for the Ministry of Business, Innovation and Employment found potential for as much as 14 billion barrels of oil, calculated across 20 percent of TAG's East Coast Basin acreage.

It says the shale deposits are similar in "total organic carbon content and oil and gas maturity levels to successful tight oil and gas plays such as North Dakota's Bakken shale".

Prolific shale field oil and gas discoveries are transforming the US economy and the global oil and gas trade, with discoveries of such size that the US is becoming a net oil producer and exporter, potentially leading to lower global costs for transport fuels.

"While we know drilling conditions can be tricky in this over-pressured basin, our drilling department is well prepared to complete these operations safely and with minimal impact to the environment," TAG's chief operating officer Drew Cadenhead says in a statement to the Toronto Stock Exchange, where TAG is listed.

Chief executive Garth Johnson, in a separate statement for New Zealand consumption, acknowledges the exploration was of concern to some people, but engagement with affected communities over many years had seen "overall ... tremendous support from the people on the East Coast".

"We will methodically carry out all work to the highest safety and environmental standards, while striving to leave the smallest footprint possible."

TAG says the rock formations in question are "naturally fractured", but as an unconventional oil and gas play a commercial discovery might still require use of the controversial extraction process known as hydraulic fracturing, or "fracking".

Commissioner for the Environment Jan Wright issued an interim report last year saying fracking could be conducted safely with stringent regulations.

Her final report and recommendations were due by mid-year, although it is understood the report is now unlikely before the end of the year.

(BusinessDesk)