--Apache will pay for exploration on more than 1 million acres on New Zealand's North Island
--TAG Oil holds 100% working interest on tracks, will cede stake to Apache as exploration phases are completed
--Apache will pay up to $100 million to meet its obligations in pact
--TAG says East Coast Basin holds equivalent of an estimated 1.7 billion barrels of oil, with potentially more locked in deep shale formations
(Adds background in paragraphs four through eight. Updates share prices in last paragraph. Adds New Zealand production data in paragraph 13.)
HOUSTON(Dow Jones)--Apache Corp. (APA) has struck a pact with Canadian oil and gas producer TAG Oil Ltd. (TAO.T) to explore more than a million acres on New Zealand's North Island.
TAG holds a 100% working interest in more than 1.7 million acres in New Zealand's East Coast Basin. The Vancouver company says its acreage potentially holds the equivalent of 1.7 billion barrels of oil in conventional reservoirs and could produce even more from deeply buried oil-bearing shale formations.
"We like the prospectivity and the opportunity," said Apache spokesman Patrick Cassidy. "It looks to be unconventional and we can bring value to those assets."
Houston-based Apache is among the U.S. companies that have pioneered using unconventional drilling techniques to extract vast reserves of oil and gas from onshore shale formations. By combining horizontal drilling techniques with a rock-cracking process called hydraulic fracturing, or fracking, producers have unleashed vast reserves of oil and natural gas from deeply buried rock formations in the U.S.
Now producers are taking those techniques global.
In April the U.S. Energy Information Administration estimated that natural gas-bearing shale formations in 32 countries contain about 5,760 trillion cubic feet of technically recoverable gas. That's nearly seven times the amount present in the U.S., where the glut of shale gas has depressed prices to around $4 per million British thermal units, less than half the price seen three years ago.
New Zealand was not part of the EIA's study.
Apache has been an early mover among U.S. companies carrying shale drilling abroad. Last month Halliburton Ltd. (HAL), which is a leading provider of fracking services in the U.S., helped Apache complete South America's horizontal first shale well in Argentina.
In New Zealand, Apache has agreed to pay for the collection of two- and three-dimensional seismic data in the basin in exchange for stakes in the properties as well as exploratory drilling if the seismic data suggests doing so.
TAG said in a news release that the exploration work would be conducted over the next four years, with seismic operations beginning this month and drilling expected to start in early 2012.
The work, which will be done in three phases, could eventually yield Apache a 50% interest in the acreage, TAG said. If the exploration reaches that point, it will have cost Apache $100 million.
Exploration and development beyond that would then be shared equally by both companies, TAG said.
While New Zealand meets its own natural gas needs, it is currently an importer of oil, according to the EIA. In 2009, the most recent year for which data is available, the country imported about 60% of the nearly 151,000 barrels of oil it consumed each day, according to the EIA.
Shares of Apache recently traded 3% lower at $98.70 amid broad market declines. TAG shares, which trade on the Toronto Stock Exchange, were recently up 7.2% at C$7.62.
Copyright © 2011 Dow Jones Newswires
