The outlook for the oil & gas sector has improved considerably in recent months. In February, oil prices hit a multi-year low amid concerns over oversupply and a slowdown in China, one of the key drivers of demand. However, since hitting multi-year low levels, prices have since gone through a sharp recovery.
Oil has rallied on the back of supply outages in Canada and Nigeria. Prices have also got a boost on improving fundamentals. Indeed, in a recent report, the International Energy Agency (IEA) noted that the first quarter of 2016 saw better-than- expected demand growth, driven by India.
Going forward, non-Organization for Economic Co-Operation and Development (OECD) countries are expected to drive demand growth. At the same time, the oil market is continuing to see supply outages and declining production in the U.S.
Based on these factors, analysts expect the oil market to re-balance sooner-than- expected. The Brexit issue has had a negative impact on price, however, this is likely to be temporary. The improving fundamentals should continue to provide support to prices.
Stronger oil prices should benefit oil and gas producers such as TAG Oil Ltd. (TSX:TAO). Based in Vancouver, TAG Oil has assets consisting of approximately 2.06 million net acres of land in the Taranaki, East Coast and Canterbury Basins of New Zealand, and 30,816 net acres of land offshore in the Taranaki Basin.
TAO shares gained momentum yesterday after the company reported its fiscal year 2016 results. For the fiscal year ended March 31, 2016, the company reported revenue of $24.8 million, down 50% from the fiscal year 2015. The decline in revenue was due to lower production and weaker commodity prices.
The company’s capital expenditures for the fiscal year 2016 totaled $11.8 million. It ended the fiscal year with $16.8 million in cash and cash equivalents on its balance sheet and $22.1 million in working capital. The company did not have any debt at the end of the year.
Looking ahead, TAG Oil noted that its near-term focus is on low-expenditure, in-field production optimization opportunities, and other necessity activities core to increasing production.
The company said that it has identified opportunities through an extensive geotechnical and engineering review of its Taranaki development and exploration acreage with a view to initiate further drilling on the Cheal and Sidewinder acreage later in the 2017 fiscal year. TAO’s capital budget for the current fiscal year is expected to be $7.6 million.
The company expects to fund this through its forecast cash flow and existing working capital.
As mentioned above, TAO shares were on the move higher yesterday however today shares have not yet traded in early morning trading. At last check, the stock was at $0.830 and stuck in a channel pattern between $0.75 and $0.90 over the last few months.
