Contractual entitlement reduction TAW production

Contact advised of possible reduction in contractual entitlement to TAW production

In October 2003, Contact was informed by Southern Petroleum (New Zealand) Exploration Limited (a Swift Energy subsidiary), the operator of the Tariki, Ahuroa and Waihapa gas fields (“TAW fields”) that Contact’s entitlement to production from the TAW fields under the terms of the Gas Supply Agreement (‘the Agreement”) between the parties, may be reduced from the volumes anticipated under that Agreement. Under the terms of the Agreement, Contact’s entitlement to production is determined by reference to that which can be economically recovered using existing wells and facilities during the term of the Agreement. Since receiving that advice from Swift, Contact has been evaluating the information made available by Swift and has received expert advice which confirmed there is a likelihood of a contractual reduction.

Swift has informed Contact that there is likely to be a shortfall against the current contractual expectation from the existing facilities. The parties are currently discussing whether additional investment may result in the extraction of additional reserves to make up the shortfall and if so, the terms upon which they may delivered to Contact. The Agreement relating to the supply of gas from the fields provides for the supply of approximately 10PJ per annum for the next three years (and approximately 28 PJ in total until the end of 2007).

Contact is currently analysing the data which have been made available by Swift.

The TAW Agreement provides a useful source of additional gas to Contact, and diversification in a portfolio from primary reliance on Maui gas. However, the TAW field is not large and the total gas entitlement thought to be at risk represents a very small percentage of Contact’s total remaining gas entitlements.

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