Nighthawk Energy Regulatory News (HAWK)

27 Sep 2007 07:02

Nighthawk Energy plc27 September 2007 NIGHTHAWK ENERGY PLC FINAL RESULTS The Directors of Nighthawk Energy plc ("Nighthawk" or "the Company") (AIM:HAWK), the US focused hydrocarbon production and development company, announcethe Company's final results for the year ended 30 June 2007. HIGHLIGHTS • Continuing strong progress on the drilling and development programme atCisco Springs • Independent evaluation of Cisco Springs showing P90 reserves of 74.9bcf and P50 reserves of 94.2 bcf of gas, net to Nighthawk, with an NPV10 ofUS$192.3 million, net to Nighthawk • Further acquisitions including substantial interests in the DevonOilfield, Jolly Ranch, Centurion and Cliffs projects • Successful and expanded appraisal drilling programme at the DevonOilfield • AIM admission in March 2007 accompanied by an oversubscribedinstitutional fundraising of £9.1 million net • Secondary fundraising in June 2007 of £5.0 million net • Cash resources at 30 June 2007 of £11.3 million David Bramhill, Managing Director of Nighthawk, commented: "Nighthawk is a youngand fast growing company with strong news flow expected from our operations inthe US. The results from our continuing drilling, development and acquisitionprogrammes have added significantly to our asset and reserve base. As a resultwe have commissioned independent consultants, OPC, to conduct a full evaluationof our expanded project portfolio, which will commence in the fourth quarter of2007. "There is still work to be done before we achieve our principal objectives, ofwhich being cash flow positive is of major importance. However our substantialinvestments, in both monetary terms and time, in our key projects are beginningto bear fruit and our aim to create shareholder value is being reflectedpositively at this still early stage in the Company's development." Enquiries: 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 Managing Director's Statement I am pleased to report to the shareholders of Nighthawk Energy plc ("Nighthawk"or "the Company") significant progress, growth and development during thefinancial year ended 30 June 2007. During the past year the Company has achieved many of its goals. These includedadmission to AIM in March 2007, which was accompanied by an oversubscribedinstitutional fundraising of £9.1 million net, a secondary fundraising in June2007 of £5.0 million net and the acquisition of a further 12.5% working interestin our flagship production and development project, Cisco Springs, which hasseen significant investment and drilling success. In addition, a number ofacquisitions have been made, including substantial interests in the DevonOilfield (formerly known as Vogel Bartlesville), the Jolly Ranch, Centurion andCliffs projects, details of which are set out below. Of utmost importance is our rapidly growing working relationship with RunningFoxes Petroleum Inc. ("Running Foxes"), a Denver-based private energy company,which has been responsible for bringing high quality projects in the US toNighthawk. Running Foxes holds interests in, and is the operator of, all of ourprojects. Cisco Springs, Grand County, Utah Nighthawk acquired a 25% working interest in the producing Cisco Springs naturalgas field from Running Foxes in June 2006, and a further 12.5% in October 2006,bringing its interest to 37.5%. An evaluation of the project by internationalconsultants Oilfield Production Consultants ("OPC") in March 2007, calculatednatural gas reserves, net to Nighthawk to be 74.9 billion cubic feet in the P90(Proved) and 94.2 billion cubic feet in the P50 (Proved + Probable) categories,with a NPV10 of US$192.3 million net to Nighthawk. The acquisitions included pro-rata ownership of an Ingersoll-Rand drilling rig,a work-over rig, 25 miles of pipeline connected to a national distributionsystem, numerous oil storage tanks to store ancillary oil production and otherproject related equipment. During the year, the land base at Cisco Springs hasincreased from 16,000 to 18,000 acres. Further land acquisitions via Bureau ofLand Management ("BLM") auctions and private sale are planned for the future.These acquisitions will increase proven and probable reserves, due to thenumerous previously drilled stranded gas discoveries on the majority of theacreage and will also add to the, in excess of, 400 drill sites within thecurrently held project area. Since mid 2006 a major two year production and development programme has been inprogress. This includes the drilling of at least 60 new wells, a work-overprogramme on existing wells, seismic acquisition and aeromagnetic surveys.Since the commencement of the programme, 21 new wells have been drilled, ofwhich 16 have been logged and cased as future production wells with resultsawaited for three wells. An important development has been the recognition ofthe potential of the Lower Cretaceous Mancos shale, which covers the wholeproject area. The Mancos shale, which has not been tested in wells drilled todate and was not evaluated by OPC in March 2007, could however be a productivehorizon in all wells, even where wells contain non-commercial quantities ofhydrocarbons in the conventional targets. The directors believe that thishorizon offers significant reserve upside to the project. During the year, modest production of natural gas has been sold and routedthrough a third party owned pipeline which has a limited capacity and isfrequently constrained. The production rate during the year has reached up to700,000 cubic feet of gas per day with many new discovery wells currently chokedback due to these limitations. Of great commercial importance to Nighthawk is the implementation of newcompression and gathering facilities and a tap connecting production to a majortrunk pipeline operated by Northwest Pipeline Company. Construction of thesefacilities is at an advanced stage with full commissioning expected early in thefourth quarter of 2007. The new facilities will offer the Company and RunningFoxes a vastly increased sales capacity for natural gas produced at CiscoSprings and a strong competitive advantage in the area. The directors are confident that the current development plan and operations atCisco Springs will further enhance the already proven potential of the projectand lead to the discovery of significant additional hydrocarbons and theincrease of the Company's production and cashflow. Devon Oilfield, Bourbon County, Kansas Nighthawk acquired an 80% interest in the Devon Oilfield, located in BourbonCounty, Kansas, from Mountain Energy Corporation, in March 2007 for aconsideration of US$450,000. At that time, the project area, which is withinthe Cherokee Basin, a prolific shallow oil and gas producing area, covered 160acres. Following continuing drilling success, Nighthawk and Running Foxes haveexpanded this acreage incrementally to 1,764 acres. Running Foxes estimated the oil in-place over the original 160 acres to beapproximately 3 million barrels gross. Since this time the land base of theproject has been expanded by a factor of 10 and the operator now estimates theoil in-place to be in excess of 10 million barrels gross. The original 12 well drilling programme over 160 acres was expanded to 54 wellsfollowing the expansion of the land base to 960 acres, the results of whichindicated that the oil bearing sandstones extended beyond the currently knownparameters. To date, 33 appraisal wells have been reported upon, of which 28 have confirmedthe presence of oil saturated sandstone and have been completed, logged andcased as future producers. Subsequent to the planned 54 appraisal well programme covering 960 acres,Nighthawk has acquired a further 804 acres and two successful test wells, theCleaver 5-6A and Cleaver 5-6C, have been drilled within this acreage. As aresult of these discoveries several new wells over and above the planned 54 wellprogramme are currently being permitted. The objective of the appraisal drilling, targeting Bartlesville channelsandstones at depths of between 350 and 450 feet, is to delineate the extent ofthe reservoir in preparation for a pilot waterflood operation. Pumpjacks,in-field flow lines, oil/water separation equipment and storage tanks have beenpurchased in anticipation of early development and production. Jolly Ranch, Lincoln County, Colorado Nighthawk holds a 50% interest in the Jolly Ranch project which coversapproximately 40,000 acres within the prolific Denver Basin, where production isdrawn from Carboniferous Pennsylvanian, Permian and Cretaceous reservoirs, alsoproductive throughout much of the mid-Continent region of the US. The project acreage contains two oilfields, Bolero and Craig Ranch, which wereabandoned during the late 1980s and early 1990s due to outdated completionpractices at that time and low oil prices. A development programme is underway, with a 3-D seismic programme covering 21square miles completed and being processed, and the drilling of four test wellsplanned for the fourth quarter of 2007. In August 2007 a positive evaluation ofthree previously drilled wells was conducted by Bowler Petrophysics, aDenver-based petrophysical company. Digitised log interpretations in respect ofthese three wells showed the estimated oil in-place to be approximately 865,000barrels. In addition, the report identified by-passed oil zones which will betested during the new drilling programme. These zones will also be furthertargets in future wells within the project area. In the opinion of the directors, Jolly Ranch, which is located near a strongmarket for oil and gas and in an area that has excellent services for theindustry, has the potential to add substantial value to Nighthawk. Centurion Project, Sumner County, Kansas Nighthawk acquired a 50% interest in the Centurion project in June 2007 for aconsideration of US$350,000. The Centurion project covers an area of 12,000acres in Sumner County, Kansas, within the Sedgwick Basin. The area, south ofWichita, is a prolific oil producer and with the advent of new 3-D seismicsurveys, a number of operating companies have found oilfields that remainedundiscovered using previous exploration methods. The project targets numerous conventional oil zones, including the Arbuckle,Simpson, Viola, Mississippian and Cherokee reservoirs, at depths of less than4,500 feet. In addition, there is the potential for the production of shale gasfrom the Simpson and Chattanooga horizons. Based on log analyses, the operator, Running Foxes, estimates that the gasin-place in the Chattanooga Shale interval is between 8 and 12 billion cubicfeet per 640 acres. A number of older fields in the area, such as Sauzek, were prematurely abandoneddue to high water production. Nighthawk and Running Foxes plan to installprogressive cavity pumps capable of moving large amounts of fluid. Thistechnology has become a profitable method of recovering oil from high water cutreservoirs. Using this method, handling and lifting costs for oil are reducedsignificantly. A 3-D seismic programme and two test wells are planned for the fourth quarter of2007. Cliffs Project, Clark, Crawford, Cumberland, and Jasper Counties, Illinois Nighthawk acquired an 80% interest in the Cliffs shale gas project from MountainEnergy Corporation for a consideration of US$935,000 in June 2007. The Cliffs project covers an area of 15,591 acres in Clark, Crawford, Cumberlandand Jasper Counties, within the Illinois Basin, an intra-cratonic basin whichhas produced in excess of four billion barrels of oil from numerous reservoirsat depths of less than 2,900 feet. Shale gas is seen as a long term energy resource that will help to replaceconventional US hydrocarbon reserves as they are depleted. Shale gas productiontends to be relatively slow and long lasting. A typical well in the New AlbanyShale, our main target, will have a 30 year production life. The gas in-place within the New Albany Shale in the whole of the Illinois Basinhas been estimated by the Devonian Shale Task Group of the National PetroleumCouncil Committee, to be approximately 86 trillion cubic feet. A test well is planned to be drilled in the near future with the objective ofcollecting gas content data and a horizontal leg will be initiated in the sameborehole to evaluate potential production rates. Analysis by Bowler Petrophysics of the logs of two previously drilled wellswithin the Cliffs project area showed the gas in-place on a 640 acre spacing tobe 9.6 billion cubic feet and 6.8 billion cubic feet respectively. In the opinion of the directors, the Cliffs acquisition represents a low costand low risk entry into a project with potentially significant gas and oilreserves in a proven hydrocarbon province. Nightfox Drilling LLC and Desperado Trucking Services Inc. Nighthawk Production LLC, a wholly owned US subsidiary of the Company andRunning Foxes own a significant amount of oil service equipment, including adrilling rig and a work-over rig. The ownership of this equipment has been transferred into a newly formed companyNightfox Drilling LLC. In addition, in June 2007 Nighthawk Production and Running Foxes acquired thebusiness and assets of Desperado Trucking Services Inc., for a purchase price ofUS$450,000. The current high demand for oilfield equipment and services can cause delays inoperational activities and escalate costs. The directors consider that theacquisition of these assets combined with our existing project infrastructure isa positive step in respect of the future development of our projects. Corporate and Financial Nighthawk was admitted to AIM in March 2007, accompanied by a placing whichraised £9.1 million net to the Company. These funds are being used to financethe drilling and development programme and further land acquisition at CiscoSprings and the funding of the expanded development programme at the DevonOilfield. In addition, Nighthawk has satisfied payment in full in respect ofits 37.5% interest in Cisco Springs. A secondary placing took place in June 2007, raising £5 million net to Nighthawkto fund the acquisition and development of the interests in the Jolly Ranch,Centurion and Cliffs projects and the acquisition of Desperado Trucking ServicesInc. The directors are delighted to have secured these recent acquisitions, inparticular, Jolly Ranch which contains two abandoned oilfields and has been thesubject of independent positive reports. We are optimistic that Jolly Ranchwill convert to a third production project for Nighthawk during the currentfinancial year. The successful fundraisings have enabled Nighthawk to progress rapidly andexpand its operations in the US. The past year has seen major investment in twolate stage development projects, namely Cisco Springs, where drilling resultshave met our expectations and production is being significantly upgraded by theconstruction of new production facilities and the Devon Oilfield which hasyielded drilling results far beyond our original expectations. The financial results contained within this report reflect the year ended 30June 2007. Cash balances and liquid investments at the time of this report areapproximately £10 million. Nighthawk is currently generating modest cash flowfrom production at Cisco Springs, which is expected to improve significantlyupon commissioning of the new production facilities, royalty interests,dividends from its high yield bond and equity portfolio and interest on its cashdeposits. IFRS The Group will make the transition to IFRS for the six months ending 31 December2007 as required under the AIM rules. Implementation will require restatementof the 30 June 2006 and 2007 balance sheets and restatement of the profit andloss account for the year ended 30 June 2007. The Group's interim financialinformation will also require restating as at and for the six months ended 31December 2007. The Company is currently assessing the impact of the transitionto IFRS. The restatements are not expected to be material to the financialposition of the Group. Health and Safety Nighthawk and the operator of its projects Running Foxes have adopted andmaintain high environmental standards. In addition, environmentally sympatheticmethods of drilling and production are employed. The partnership is also proactive in maintaining excellent relationships withthe BLM and land owners. Conclusion and the Future In summary, Nighthawk is a young and fast growing company with strong news flowexpected from our operations in the US. The results from our continuing drilling, development and acquisition programmeshave added significantly to our asset and reserve base. OPC has beencommissioned to conduct a full evaluation of our expanded project portfolio,which will commence in the fourth quarter of 2007. There is still work to be done before we achieve our principal objectives, ofwhich being cash flow positive is of major importance. However our substantialinvestments, in both monetary terms and time, in our key projects are beginningto bear fruit and our aim to create shareholder value is being reflectedpositively at this still early stage in the Company's development. I would like to take this opportunity to thank our shareholders, my fellowdirectors and management, advisers in the US and UK and our partners RunningFoxes for their collective efforts in making 2007 an extremely successful yearfor Nighthawk. David BramhillManaging Director 26 September 2007 The preliminary announcement was approved by the Board on 26 September 2007. Consolidated Profit and Loss Accountfor the year ended 30 June 2007 Note 2007 2006 £ £ Turnover 65,620 - Administrative expenses (1,107,811) (46,808)Exceptional item:AIM admission costs (205,223) - (1,313,034) (46,808) Operating loss (1,247,414) (46,808) Interest receivable and similar income 165,742 261Profit on sale of fixed asset investments 14,016 - Loss on ordinary activities before taxation (1,067,656) (46,547)Tax on loss on ordinary activities - - Loss for the financial year (1,067,656) (46,547) Basic and diluted loss per share 2 (0.95p) (0.53p) The operating loss in the current year arises from continuing activities. Consolidated Balance Sheetas at 30 June 2007 Note 30 June 2007 30 June 30 June £ 2007 2006 £ £ Fixed assetsIntangible assets 7,564,661 151,744Tangible assets 5,431 1,568Investments in joint ventures - share of gross assets 114,159 - - share of gross liabilities (1,862) - 112,298 Investment in associated undertakings 252,545 - Other investments 767,368 - 1,132,211 8,702,303 153,312Current assetsDebtors 198,460 51,003Cash at bank and in hand 11,285,559 1,752,048 11,484,019 1,803,051 Creditors: amounts falling due within one year (459,784) (308,909) Net current assets 11,024,235 1,494,142 Total assets less current liabilities 19,726,538 1,647,454 Capital and reservesCalled up share capital 419,870 157,663Share premium account 20,277,354 1,436,750Merger reserve 99,588 99,588Share options reserve 43,929 -Profit and loss account (1,114,203) (46,547) Equity shareholders' funds 3 19,726,538 1,647,454 Consolidated Cash Flow Statementfor the year ended 30 June 2007 Note 2007 2006 £ £ Net cash outflow from operating activities 4 (1,158,981) (62,349) Returns on investments and servicing of financeInterest received 140,476 261Dividends from fixed asset investments 25,266 - Net cashflow from returns on investments and servicing of 165,742 261finance Capital expenditure and financial investmentPurchase of intangible fixed assets (7,508,918) (112,274)Purchase of tangible fixed assets (6,048) (2,090)Purchase of fixed asset investments (868,692) -Sale of intangible fixed assets 56,400 -Sale of fixed asset investments 115,340 -Sale of tangible fixed assets 700 - Net cash outflow from capital expenditure (8,211,218) (114,364)and financial investment AcquisitionsPurchase of investment in joint venture (112,298)Purchase of investment in associated undertaking (252,545)Net cash acquired with subsidiary - 52,300 Net cash (outflow)/inflow from acquisitions (364,843) 52,300 Management of liquid resourcesPurchase of short term deposits (7,962,278) (1,745,273) Net cash outflow from management of liquid resources (7,962,278) (1,745,273) FinancingIssue of shares 20,348,605 1,916,200Expenses of share issues (1,245,794) (40,000) Net cash inflow from financing 19,102,811 1,876,200 Increase in cash 5 1,571,233 6,775 Notes 1. Basis of Preparation The preliminary announcement has been prepared in accordance with applicableaccounting standards and under the historical cost convention. The principalaccounting policies of the Group have remained unchanged from those set out inthe Group's 30 June 2006 annual report and financial statements, except for theadoption of FRS 20 (IFRS 2) Share-Based payment. This has had no impact for theresults to the period ended 30 June 2006. No prior period adjustment wastherefore deemed necessary. 2. Loss per share The calculation of the loss per ordinary share is based on a loss for the yearof £1,067,656 (2006: £46,547) and the weighted average number of ordinary sharesoutstanding at the year end of 112,893,363 (2006: 8,731,542). The share optionsare anti-dilutive under FRS 22. Share options that would potentially dilutebasic earnings per share but which were not included in the calculation becausethey were anti-dilutive for the periods presented are disclosed in note 13 ofthe consolidated financial statements. 3. Reconciliation of movements in shareholders' funds Group 2007 2006 £ £Total recognised loss for the year (1,067,656) (46,547)Issue of shares (net of expenses) 19,102,811 1,694,000Share option reserve 43,929 - Net increase in shareholders' funds 18,079,084 1,647,453Shareholders' funds brought forward 1,647,454 1 Shareholders' funds at 30 June 2007 19,726,538 1,647,454 4. Net cash outflow from operating activities 2007 2006 £ £ Operating loss (1,247,414) (46,808)Amortisation 39,601 - Depreciation 1,485 522Transfer to share option reserve 43,929 -Increase in debtors (147,457) (39,972)Increase in creditors 150,875 23,909Net cash outflow from operating activities (1,158,981) (62,349) 5. Reconciliation of net cashflow to movement in net funds 2007 2006 £ £ 1,571,233 6,775Increase in cash in the periodCash inflow from increase in liquid resources 7,962,278 1,745,273 Change in net funds resulting from cashflows 9,533,511 1,752,048Net funds at 1 July 2006 1,752,048 - Net funds at 30 June 2007 11,285,559 1,752,048 6. Segmental Analysis The Group's net segmental analysis are in the following geographical locations: Loss before taxation Net assets 2007 2006 2007 2006 £ £ £ £United Kingdom (953,404) (46,547) 11,941, 304 602,342United States of America (114,252) - 7,785,234 1,034,082Other - - - 11,030 (1,067,656) (46,547) 19,726,538 1,647,454 The loss in the United Kingdom includes exceptional AIM costs of £205,223. 7. Publication of non-statutory accounts The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. The summarised balance sheet at 30 June 2007 and the summarised profit and lossaccount, summarised cash flow statement and associated notes for the year thenended have been extracted from the Group's 30 June 2007 statutory financialstatements upon which the auditors opinion is unqualified and does not includeany statement under Section 237 of the Companies Act 1985. Those financial statements have not yet been delivered to the Registrar ofCompanies. 8. Annual report and AGM The annual report will be available from the Company's website,www.nighthawkenergy.net, from 27 September 2007 and posted to shareholders inthe week commencing 1 October 2007. The annual report contains notice of theannual general meeting of the Company which will be held at 11.00 a.m. on 7November 2007 at the offices of Osborne Clarke, One London Wall, London EC2Y5EB. This information is provided by RNS The company news service from the London Stock Exchange