LONDON (Alliance News) - Nighthawk Energy PLC on Wednesday said the Commonwealth Bank of Australia has finished its redetermination of the company's borrowing base, which has resulted in Nighthawk's borrowing capacity being reduced by USD5.0 million.
A borrowing base is the value of a company's assets which is used by lenders to determine how much money they are willing to lend.
Following a review, the Commonwealth Bank of Australia has decided to reduce Nighthawk's lending capacity to USD27.0 million from USD32.0 million, mainly because the value of its oil reserves are falling in line with oil prices, which have dropped from highs of over USD100 a barrel in the middle of 2014 to around USD50 per barrel on Wednesday morning.
"The significant price drop seen [in WTI prices] by the market in the July to August 2015 time period. Consistent with many other operators' reserve based loans in a declining oil price environment, the company's borrowing base available to be drawn was reduced," it said in a statement.
At the start of July, West Texas Intermediate was trading at around USD57 per barrel but by the end of August the price had dropped to around USD48 per barrel.
As a result of its borrowing base being reduced, Nighthawk will have to make three payments of USD1.0 million each, or USD3.0 million in total, in December, January and February in order to get its borrowing base under the new USD27.0 million limit.
Nighthawk said it will pay the USD1.0 million due in December, but said it will try to avoid the payments due in January and February by finding more reserves through its drilling campaign, which would boost the amount of reserves it has, the value of those reserves and therefore its borrowing base.
"Additional reserve value may be realized from the current drilling program, upward adjustments to existing well recoverability and/or increases in the forward strip price of crude oil," said the company.
At the end of October, the company said it had around USD11.0 million in cash, and is confident its is sufficiently funded regardless of what happens.
"Based on current projections, the company has adequate cash on hand to meet the above debt payment obligations, maintain its necessary liquidity as well as meet projected expenditures, including on the remaining wells of its current drilling programme," it said.
The company also provided an update about its hedging programme, which is designed to try and protect its oil sales from falling prices. At the start of November, Nighthawk had 54,000 barrels of production hedged at an average price of USD70.13 per barrel - substantially above average WTI prices.
Those hedges settle in November, and therefore the company will make around USD1.4 million more via its hedges than if it had sold its production at WTI spot prices, it said.
In 2016, the company has 167,000 barrels hedged at USD63.63 per barrel, and the company said it plans to hedge more production for 2016 and 2017 "as prices recover", it said.
In September, it said it achieved an average price of USD53 per barrel for its production compared to WTI prices averaging around USD45 per barrel.
Nighthawk shares were trading up 18% to 2.63 pence per share on Wednesday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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