Nighthawk Energy Regulatory News (HAWK)

5 Dec 2007 07:00

Nighthawk Energy plc05 December 2007 Nighthawk Energy plc Cisco Springs Project Update Highlights • New production facilities operational • Acquisition of further 12.5 per cent. interest in Cisco Springs project • P50 net natural gas reserves increased by 33.3 per cent. to 125 bcf through the acquisition • Six recent wells completed as future producers The directors of Nighthawk Energy plc ("Nighthawk" or "the Company") (AIM:HAWK), the US focused hydrocarbon production and development company, arepleased to announce an update on operations at the Cisco Springs project,located in Grand County, Utah. This update includes details of thecommissioning of the new production facilities and the commencement of gassales, the acquisition of a further 12.5 per cent. of the Cisco Springs projectfrom the operator, Running Foxes Petroleum Inc. ("Running Foxes") and positivedrill results from both the Summer and current drilling programmes. Commissioning of new production facilities and commencement of gas sales Construction and commissioning of the first phase of the Nighthawk and RunningFoxes jointly owned Cisco Springs production facilities is complete and naturalgas is now being sold to market directly via the Northwest pipeline. Previously drilled production wells are currently being hooked up to thefacilities via an internal pipeline network and production and gas sales at theend of 2007 are expected to be between 1.0-1.5 mmcfgpd. Planned production willbe incrementally increased to between 3.0-4.0 mmcfgpd by the end of 2008.Upgrading of the production facilities is ongoing and an additional compressorcapable of handling 1.2 mmcfgpd is en-route to Cisco Springs and will be tied-into the facilities on arrival at site. This will augment the existing compressorwhich is rated at 3.0 mmcfgpd. Gas prices in the Rocky Mountain region have firmed considerably during lateNovember and December 2007 and 50 per cent. of Cisco gas is being delivered atdaily spot price and 50 per cent. at monthly spot price. Forward salescontracts are also being considered by Nighthawk and Running Foxes for thefuture. The Rocky Mountain region is currently seeing major activity in respect of localpipeline construction. During the next four years, the Bronco pipeline,operated by Spectra, is expected to be commissioned supplying natural gas to theWestern US markets, followed by the important Kinder Morgan, Rocky Mountainpipeline which will, upon completion, supply product to the high demand marketsof New York, where prices are usually at a premium to NYMEX. In addition theWilliams pipeline is expected to ship product eastwards in 2010. These newpipelines will open additional markets to Cisco Springs production and areexpected to underpin gas prices in the region. Acquisition of a further 12.5 per cent interest in the Cisco Springs project Agreement has been reached with Running Foxes to purchase with immediate effecta further 12.5 per cent. working interest in the Cisco Springs project,increasing Nighthawk's currently held 37.5 per cent. interest to 50 per cent. The purchase price for the additional interest is US$4,000,000 which will befunded from the Company's existing cash reserves. Included in the transaction is a pro rata interest in the project ownedproduction facilities, Ingersoll-Rand drill rig, a workover rig and all otherproject related equipment including a pipeline network and numerous oil storagetanks. Nighthawk will be entitled to a 50 per cent. revenue share from all gasand oil sales from 1 December 2007. The transaction provides Nighthawk with a significant increase in both P90 andP50 reserves. Based on the Competent Person's Report of March 2007 on the CiscoSprings project by Oilfield Production Consultants Limited ("OPC"), P90 reserves(Proven), net to Nighthawk, increase through the transaction from 74.9 bcf(billion cubic feet) to 99.85 bcf and P50 reserves (Proven + Probable) from 94.2bcf to 125.59 bcf. OPC was commissioned to comment on the acquisition of the additional interestfrom Running Foxes and their comments are as follows: "In equivalent terms, the consideration is considerably less than the NPV10 ofthe Cisco Springs project as evaluated by OPC in its CPR of March 2007. We havebeen advised by the Directors of Nighthawk that since that time the twocompanies have become partners in several new development projects and theacquisition can thus be considered a strategic transaction. "We are also advised by the Directors of Nighthawk that since the OPC evaluationa significant number of new wells have been drilled on the project. We haveinspected the data from several of these wells and confirm that the results arein line with the OPC parameters assumed in the CPR, while in some cases theyhave significantly exceeded expectations. Furthermore, additional acreage tothat evaluated in the CPR has been acquired and this could be expected toincrease pro rata the NPV of the project. "Given this information, OPC is of the opinion that any revised and updatedevaluation of Nighthawk's interest in the Cisco Springs project may well reflecta value materially higher than that originally calculated." Drilling programmes and results A drilling and development programme of over 60 wells commenced in June 2007 andis ongoing. Drilling results to date continue to confirm the presence ofadditional hydrocarbons. Commercial discovery wells have been logged and casedas producers and are currently being hooked up to the Cisco productionfacilities. Nighthawk and Running Foxes have adopted a systematic and scientific approach tofield development including the shooting of seismic and the flying of anaeromagnetic survey over much of the project area which covers in excess of18,000 acres. The subsequent interpretation of this seismic and aeromagneticdata has resulted in a better understanding of the reservoir distribution,minimising the potential for dry holes. Following completion of the previous ten well programme, Major Drilling, a SaltLake City based drilling company, commenced a seven well programme in lateOctober 2007. The three wells drilled to date, the Cisco 7-8-1, Cisco 7-1-1 andCisco 6-13-2 have all indicated hydrocarbon reserves in place and have beenlogged and cased as future production wells. The remaining four wells will becompleted by mid-December. Additional drilling permits are expected to bereceived from the Bureau of Land Management in the near future. Another important recent development has been the recognition of the productionpotential of the Mancos shale, which covers the whole project area. Thispotential is currently being investigated, and to date, Nighthawk and RunningFoxes are encouraged by the results obtained at this early stage of evaluation. In addition to the new well programme, a number of the 62 old wells that werepart of the original purchase package have been successfully re-entered,resulting in increased production rates and the discovery of additionalhydrocarbon reserves. A typical well costs US$140,000 to US$200,000 through to completion. Usingheavily discounted recovery factors the potential rate of return per well is amultiple of 10 to 15 times drilling costs, amply demonstrating the financialrobustness of the Cisco Springs project. The wells drilled are evaluated for conventional gas (on a 40 acre spacing) andoil (on a 10 acre spacing) potential. The majority of new commercial wellsdrilled are gas producers. However a notable feature of recent drilling hasbeen the discovery of significant oil zones. Wireline log analysis is conducted by Atoka Laboratories, using Bowler JLogpetrophysical analysis software. Analysis of the final three wells from thesummer programme and the first three wells of the new programme has beencompleted. The results, showing formations, depth intervals, estimatedhydrocarbons in place and total net pay thickness are set out below. Well Formation Depth of Hydrocarbons in Net Pay Formations Place (feet) (feet) Gas Oil (MMscf) (Mbbl) Cisco 7-8-1 Dakota - Cedar Mountain - 562-1,173 159 345 59 Brushy Basin - Salt Wash Cisco 7-1-1 Dakota - Brushy Basin - 636-1,291 149 183 89.5 Salt Wash Cisco 6-13-2 Brushy Basin - Salt Wash 1,194-1,312 47 218 50 Cisco 30-9-4 Dakota - Cedar Mountain - 348-1,340 367 - 159 Brushy Basin - Salt Wash - Entrada Cisco 30-15-4 Dakota - Cedar Mountain - 306-1,420 1,215 - 401 Brushy Basin - Salt Wash Cisco 30-8-4 Dakota - Cedar Mountain 440-560 108 - 72 MMscf = million standard cubic feet of gas Mbbl = thousands of barrels of oil David Bramhill, Managing Director of Nighthawk commented "With theimplementation of the new production facilities, we are now in a position tostart to gear up production levels. Along with our partner Running Foxes, wehave demonstrated the ability to bring a project from exploration anddevelopment to production status. Credit must be given to Steven Tedesco CEO ofRunning Foxes and his dedicated team who have worked tirelessly on both analmost continuous drilling programme as well as the construction andcommissioning of the new production facilities. This augurs well for the futureof our other development projects, in particular Jolly Ranch, where expectationsare high and the Devon Oilfield, where four water injection wells have beensuccessfully completed and pilot production will commence in the near future.As a result, we are confident that Nighthawk will be reporting on furtherdevelopment projects being brought into production in 2008." David Racher B.Sc (Hons) Geology, who is a consultant to Nighthawk, has reviewedand approved the technical information contained in this announcement. For further information please contact: Nighthawk Energy plc 01271 882160David Bramhill, Managing Director office@nighthawkenergy.netwww.nighthawkenergy.net Hanson Westhouse Limited 0113 246 2610Tim Feather tim.feather@hansonwesthouse.com Matthew Johnson matthew.johnson@hansonwesthouse.com Bishopsgate Communications Limited 020 7562 3350Dominic Barretto dominic@bishopsgatecommunications.com This information is provided by RNS The company news service from the London Stock Exchange