Nighthawk Energy Share News (HAWK)

Oil explorer Nighthawk Energy has decided to focus exclusively on its 50%-owned Jolly Ranch prospect in Colorado after completing a strategic review.The Company's interest in the Revere waterflood projects will be assigned to Running Foxes Petroleum, the operator, as of 1 January 2011 in return for a 5% overriding royalty and a 25% share of the final settlement of any future sale to a third party, if executed within two years of the assignment date.The company has yet to determine an exit strategy for its Cisco Springs project in Utah, but one of the options being considered is the sale of the whole project to a third party. "Any amount realised in a potential sale will be significantly below the amount invested to date and the board intends to write down the value of the asset in the upcoming interim accounts," the company statement said.As for the Cliffs licences that the company owns, these will be allowed to expire over the coming months.The disposal of non-core assets will result in write downs to intangible and tangible assets of about $65m, the company said. However, the company said the decision to focus on Jolly Ranch will, along with other cost saving measures, lower the rate of cash burn significantly. In the view of the board, continuing to invest in a wide array of prospects was curtailing the delivery of shareholder value. "We are now able to focus on Jolly Ranch, our lead project, which we believe has tremendous potential," said Nighthawk's chief executive officer, Tim Heeley. "A number of completions are planned over the next four months on the existing wells to be followed by the drilling of up to a further five wells later in 2011 once we have a better understanding of the completion and stimulation methods. The increasing competitor activity around our acreage continues to reinforce the belief that Jolly Ranch holds considerable upside," Heeley said.Broker Westhouse Securities was supportive of the tough decision taken by management."In the case of the Revere water-flood project, primary production was initially promising. However, after significant time and capital, it appears that the water-flood process is not going to work without additional significant investment. Management, rightly in our view, determined that this was not in the interest of shareholders, given the uncertainty that the process would eventually result in higher production and associated revenues. Meanwhile, Cisco Springs is not contributing adequate revenues as an oil and gas producing asset and is likely to be worth more to another company for its infrastructure, rather than as a non-core business for Nighthawk," Westhouse said."Overall, we are optimistic that Nighthawk has taken the correct decision in exiting from the projects announced today. The write-downs are, of course, unfortunate and would have only been made after a full and fresh assessment of project viability. However, the remaining Jolly Ranch project retains its very significant upside potential, in our view. As such, while we are reducing our target price from 88p to 37p, given the share's current level, we retain our BUY recommendation," the broker concluded.