Highlands upbeat on progress with oil, gas and cannabis

(Sharecast News) - Highlands Natural Resources updated the market on progress at its East Denver project and Zoetic Organics on Thursday, reporting that at East Denver, combined oil production from the eight producing wells was currently about 2,700 barrels of oil per day, with combined gas production sitting at 4,000 million cubic feet per day.The London-listed firm said its operating partner was continuing to proceed with its conservative production strategy, with five of the new wells being operated on a limited choke size of 25/64th inches, with the sixth well at 29/64th inches.It said the limited choke size was based on a considered methodology focussed on maintaining well pressure and extending the well lives, adding that it anticipated that the chokes would be opened further in the coming weeks with the objective of maintaining a steady production at around 10% above current levels.Notwithstanding the current flow rates, Highlands said its 7.5% carried interest in the project was generating monthly revenue in excess of its fixed operating costs, which included expense items such as office costs, payroll and professional fees.Highlands said it also incurred certain variable and discretionary expenditure in relation to the operation of its other projects, but it said it was developing two additional revenue streams - the sale of nitrogen in Kansas in conjunction with a local partner, and imminent retail sales of a range of cannabidiol products products by its wholly-owned subsidiary Zoetic.Taking account of the expected revenues from those additional sources, but before the revenues from Zoetic's crops, the board said it remained of the view that Highlands would generate sufficient cash flow to cover all overheads for the current year.Looking at Zoetic Organics, the board said it had been advancing its retail strategy for Zoetic-branded cannabidiol (CBD) products.First deliveries manufactured from the current operations would be made to Schrader Oil convenience stores this month, which meant that initial revenues will be recognised in June.Zoetic had also established its own direct-to-retail website, with further details set to be announced when sales on that site begin.Highlands and Zoetic continued to "actively develop" new products and identify further sales and distribution channels, including other specialist stores, with Zoetic to continue to source the raw materials from Colorado wholesalers pending its own production.Planting of hemp outdoors was now underway, Highlands confirmed, explaining that having refined its plans since the previous investor update in March, the Zoetic team was proposing to plant two eight-acre fields.The planting density, the ability to sell the non-flower parts of the plant as biomass and current flower prices meant that the revenue potential for Zoetic's outdoor crops in the current year was estimated to be an improvement on the previous plan.Management said it considered the deadline for planting the year's crop to be 30 June, but anticipated finishing work well before that date.It said it also planned to deliver an additional revenue stream to the business, having evolved its strategy for plants at its 33,000 square foot greenhouse.In addition to growing plants for CBD production exclusively, Zoetic said it also intended to produce feminised hemp seeds for sale to other hemp producers.The greenhouse's capacity was up to 10,000 plants per season, with Highlands explaining that a well-managed plant had the potential to produce more than 500 seeds.While the growing cycle for seed production was marginally longer, management said it believed that no less than three seasons per annum was achievable.The Zoetic management team believed that the controlled conditions in the greenhouse, and the supply of Highlands' proprietary nitrogen-hydrogen gaseous fertiliser, had the potential to establish a robust seed-production operation.That provided Zoetic with a growth opportunity materially in excess of the previous plan outlined to investors.Zoetic's management team was currently working on the most suitable strains of hemp for seed production, Highlands said.Demand for high quality seeds was "very strong" as the hemp and CBD industries continued to expand, with the most sought after seeds reportedly retailing at up to $1 each.Seed producers did typically incur costs associated with laboratory testing, storage, seed-broker fees and quality control initiatives, with Highlands factoring those into Zoetic's business plan.A seed production strategy had a timing implication on revenue, it added, saying that growers typically did not purchase seeds until planting time.Thus, while Zoetic's seed production could be carried out year-round, revenue would be weighted towards the last quarter of Highlands' financial year."The progress made by Zoetic since we established this operation less than two months ago has been excellent," said Highlands Natural Resources executive chairman and chief executive officer Robert Price."From a standing start, we have three revenue lines underway within the Zoetic business and I look forward to providing further updates as our retail sales develop."Price said it was a "fast-moving" industry, but added that the combination of Highlands' facilities and "innovative" management team had enabled its to take a flexible approach, which he said would deliver "good returns" to shareholders."In the meantime, our East Denver project is being operated to the highest standards and providing regular revenue to Highlands."