You guys understand that rig costs cannot come down by 45/50% from what they once were. They are not directly related to the oil price. The drilling industry was pretty competitive before the crash, therefore there is not much ley-way there. Also we are seeing rigs being mothballed for later use, shutdown until oil prices rise again.
We have 2 Options:
1. We continue with CT and push back the un-proven fields of HP and WB until we are on the backend of the oil price crash. This conserves cash meaning that once the margins increase we will have some cash to make acquisitions (lol) or drill more wells. This plan will mean that some investors will sell their shares on the spot as no further progress will be made for a while.
2. We drill baby drill, hoping that HP and WB are a success. Major risk to the financial health of the company.
We cannot say for certain that oil price has bottomed. $35 barrel has been seen before. So is leasing now a good idea or wait another 6 months. Should we lease more land vs drilling WB since drilling cost will be cheaper.
Nostra Terra announced that Bollenbach 1-33H (CT16), its 13th production well in the Chisholm Trail Prospect, has been able to produce an average 555 barrels of oil equivalent per day (boepd) from the Hunton Formation, over the last ten days. The CT16 well was drilled to an approximate 11,700 foot measured depth, and a true vertical depth of 7,180 feet, with an approximate 4,200 foot lateral into the Hunton formation. Nostra Terra owns a 20% working interest in the CT16 well, which is operated by Stephens Production Company.
Our view: The Chisholm Trail prospect in Oklahoma is helping build the foundation of Nostra Terra’s portfolio of conventional reservoirs that offer a lower cost of production. The production update from CT16 well would easily lead to doubling of Nostra Terra's net production of 84 boepd reported in September. Nostra Terra’s rising production would help the company report higher revenues, despite lower crude oil prices. CEO Matt Lofgran’s statement that the Chisolm Trail operations company will remain cash flow positive even if oil prices were to drop below US$50 per barrel is a vote of confidence from the management. Given the above, we reiterate our Speculative Buy rating.
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