20 Oct 2010 07:00
20 October 2010
NIGHTHAWK ENERGY PLC
("Nighthawk" or "the Company")
Preliminary Results for the year ended 30 June 2010
- New CEO initiates review of spending to ensure resources are effectively targeted to maximise impact on the development of Jolly Ranch -
Nighthawk, the US focused oil and gas development and production company (AIM: HAWK and OTCQX: NHEGY), announces preliminary results for the year ended 30 June 2010 and provides an operational update for its lead projects.
Financial Highlights
Revenue increased 332% to US$2.1 million (2009: US$498,000)
Invested approximately US$30 million in development of projects
Loss for the financial year of US$1.28 million (2009: US$1.30 million)
Cash at year end of US$7.2 million and debt free
Tim Heeley, Chief Executive Office ("CEO") of Nighthawk, said:
"Having just been appointed CEO it is too early to comment on specific initiatives that we will look to introduce over the coming months. However, it is important to stress at this stage that we will, as a priority, review spending to ensure that our resources are effectively targeted. This process will involve a thorough review of strategy and performance to ensure that the months and years ahead for Nighthawk are value-adding.
"The priority at Jolly Ranch is to determine the most efficient fracturing ("fraccing") method for the multi-stacked hydrocarbon bearing horizons. This initial phase takes longer than with a conventional development; however, once the shale formations are properly understood and capable of demonstrating long-term production the results should be applicable can be applied to the whole of the Nighthawk acreage, given the homogenous nature of the shales at Jolly Ranch, thereby creating significant value."
Operational Update - Jolly Ranch
Drilling activity taking total wells at Jolly Ranch to 19: 16 producers (6 currently producing), 2 water disposal wells and one shut-in production well recently acquired at no cost to Nighthawk.
Each producing well has encountered hydrocarbons in multiple horizons.
The John Craig 7-2 wildcat well, drilled approximately 30 miles north-west of the Craig Ranch core area, confirmed the extension of shales to that area. The well was placed on pump during September and whilst currently producing around 30 bopd, sand is prohibiting optimum flow and the well will be cleaned out prior to being put back onto test production.
Test production during the year, net to Nighthawk, was approximately 11,000 bbls net of royalty and production taxes.
Given the performance of some of the wells, it is now anticipated that the previously advised target of 1,000 bopd gross will not be met by the end of 2010. Production varies significantly on a day-by-day basis due to the limited number of wells currently on test production. This effect will dissipate as further wells are brought onstream.
Key to generating value will be to determine the most efficient fraccing method for the multi-stacked hydrocarbon bearing horizons. A further five well programme has been permitted, but the immediate focus of Nighthawk and the Operator is on the completion and testing of existing wells in order to accelerate production rates and increase understanding of the best completion techniques.
Macquarie Tristone will continue the marketing process to attract a potential farm-in partner for a proportion of the Jolly Ranch project until the end of the year. In the event that a suitable transaction is not in prospect by the end of the year, the BoardÕs current intention is to withdraw from the process until further progress has been made in understanding the drilling and completion techniques which are best suited to the Jolly Ranch project.
Operational Update - Revere (incorporating the Devon, Buchanan and Xenia fields)
167 production wells have been drilled on Revere to date, with 118 wells awaiting completion and a further 96 currently permitted.
Total net production over the year was just under 30,000 boe (net of royalty and production tax) (2009: 9,105 boe net).
The Xenia gas project, brought on-stream in November 2009, is an important contributor to revenues with gas production currently in excess of 500,000 cubic feet per day.
Recent Xenia reserve evaluation conducted by Oilfield Production Consultants Limited, shows total 2P reserves to be 1.4 billion cubic feet over 6,000 acres. The project area since that evaluation has grown to in excess of 15,000 acres.
Oil production is increasing at Devon and Buchanan with over 100 wells on production, a figure growing as the more recently drilled wells are brought on-line.
Enquiries:
| Nighthawk Energy plc Tim Heeley, Chief Executive Mike Thomsen, Executive Chairman |
020 7887 1454 +1 720 344 5154 |
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| Westhouse Securities Limited Tim Feather Matthew Johnson | 020 7601 6100 tim.feather@westhousesecurities.com matthew.johnson@westhousesecurities.com |
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| Matrix Corporate Capital LLP Louis Castro James Pope | 020 3206 7000 louis.castro@matrixgroup.co.uk james.pope@matrixgroup.co.uk |
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| Financial Dynamics Ben Brewerton Ed Westropp | 020 7831 3113 ben.brewerton@fd.com edward.westropp@fd.com |
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| Bishopsgate Communications Limited Nick Rome | 020 7562 3395 nick@bishopsgatecommunications.com |
CEO's Statement
I am pleased to report to the shareholders of Nighthawk Energy plc ("Nighthawk" or "the Company") for the first time as CEO. Whilst too early to comment on specific initiatives and plans that we will look to introduce over the coming months, it is important to stress at this stage that we will, as a priority, review spending to ensure that value is delivered for shareholders. There will be a thorough review of strategy and performance to ensure that the months and years ahead for Nighthawk are value-adding.
Macro conditions are more positive compared with those of the equivalent period last year, however volatility remains. The oil price has been relatively stable ranging from around US$65 to US$87 per barrel during the period.
Approximately US$30 million was invested by Nighthawk during the year in its hydrocarbon projects across the US mid-west in partnership with Running Foxes Petroleum Inc. ("Running Foxes"), the operator of the projects, which holds, in most cases, a 50% working interest and contributes pro-rata towards the project spend.
As anticipated, there has been a relatively substantial increase in test production revenues from around US$500,000 in 2009 to in excess of US$2 million in the latest financial year due to organic growth. We expect this figure to increase as more wells are put into production.
Jolly Ranch
The project, located in Colorado, comprises three areas, Jolly Ranch, Mustang Creek and Middle Mist. Hydrocarbon targets are both conventional oil and non-conventional shale oil.
Nighthawk holds a 50% interest in the development project and Running Foxes, the remaining 50%.
Known and understood technology now makes the development of shale plays around the world, including Jolly Ranch, easier - the key is to "crack the code" of the shales, a process which takes time and capital but yields substantial rewards once successful, as has been demonstrated in several similar shale oil and gas plays in the USA and elsewhere.
In August 2007, Nighthawk's initial investment in Jolly Ranch was approximately 50,000 gross acres. Since that time the land base has grown to in excess of 400,000 gross acres, a substantial land position more akin to a major or mid-tier company.
During this time the level of interest in continental US liquid-rich shale-based resource plays has been exceptional and it is the aim of management to continue to add value to the project through ongoing development. Of particular note in the immediate region, we have seen major independent oil companies such as Newfield Exploration Company and Unit Corporation commence the drilling of wells and, most recently, Devon Energy acquired a package of land.
Shale oil resource plays like Jolly Ranch are typically large homogeneous deposits covering many thousands of acres within geological basins. The formation of these shales leads to large quantities of oil being generated. This is underlined by Schlumberger's report indicating some 1.4 billion barrels of oil in place over 246,000 acres at Jolly Ranch. A great deal of the generated oil remains in-situ. The oil bearing rock has in some cases low permeability and porosity, therefore the shale formation needs to be fractured with high pressure fluids and sand to accelerate the flow of oil.
The key to obtaining optimum value from Jolly Ranch is to determine the most efficient method of fracturing the multiple stacked hydrocarbon-bearing horizons present in each of the production wells.
The timing for this initial phase of appraisal is longer than for a conventional development. However once the shale formations are properly understood and can demonstrate long term production, as we are now starting to see from some of our wells, the application to the wider area is precipitated given the homogeneous nature of the shales, creating value for shareholders.
Subsequent to their July 2009 report on the oil-in-place at Jolly Ranch, Schlumberger has been re-appointed to examine the hydrocarbon-bearing potential of the wider project area further and also to undertake a more detailed study to evaluate potential production profiling in a reservoir simulation model which will assess recovery factors from several different oil bearing horizons. Once this report has been completed the results will be passed to Gaffney Cline & Associates to assess and determine reserves and resources at Jolly Ranch.
Due to the early phase of development at Jolly Ranch and the way that reserves and resources are attributable to shale oil plays, it is anticipated that the reserves associated with the core area of project will be relatively low at this stage of the development. However the fact that they can be estimated is testament to the work undertaken and production achieved to date, but more importantly, will for the first time provide shareholders and stakeholders a viable, industry recognised method to determine value on the core (and also wider) acreage areas.
As expected, the recent independent report compiled by Schlumberger has concluded that the regional continuity of the shale formations was such that the resources in place are laterally continuous from the core area to the John Craig 7-2 well, a distance of approximately 30 miles from the core Craig Ranch area.
Revere
Revere, the product of the consolidation of the Devon Oilfield, Buchanan and Worden, Xenia fields and the recently acquired Hammond project, is a combined oil waterflood and gas project, covering in excess of 60,000 acres located on and around the Kansas and Missouri State borders.
The oil reservoir is under-pressured and requires water injection to help bring the oil to surface. This is a straightforward process that has been applied successfully for decades on similar oilfields in the USA and elsewhere in the world.
The Xenia gas project was brought on-stream in November 2009 and is an important contributor to revenues with gas production currently in excess of 500,000 cubic feet per day. The 26 kilometre pipeline at Xenia was completed on time and on budget linking to the 50% Nighthawk owned and operated Bourbon County pipeline where product is sold to a subsidiary of General Electric.
A recent Xenia reserve evaluation conducted by Oilfield Production Consultants Limited, showed total net 2P reserves to be 1.4 billion cubic feet over 6,000 acres. The project area since the evaluation has grown to in excess of 15,000 acres.
Oil production is increasing at Devon and Buchanan with over 100 wells on production, a figure growing as more recently drilled wells are put on-line.
New acquisitions such as Hammond and Green Valley are also expected to provide further revenue growth to what is now a substantial low-cost stand-alone project in the Nighthawk portfolio.
Corporate and Financial
The financial results for the year continue to reflect the operations of an active hydrocarbon appraisal and development company.
In comparison to the results of 2009 on a like-for-like basis:
Non-current assets increased by 42% from US$75.18 million to US$106.78 million
Revenue increased by 332%
As a post balance sheet event we were pleased to announce on 14 October 2010 the completion of an Equity Finance Facility ("EFF" or "the Facility") with Darwin Strategic Limited ("Darwin"), a part of the Evolution Group.
The EFF, which is for £25 million, provides Nighthawk with a facility which, subject to certain limited restrictions, can be drawn down at any time over the next three years; the timing and amount of any draw down is at the discretion of Nighthawk.
Nighthawk is under no obligation to make a draw down and may make as many draw downs as it wishes, up to the total value of the EFF, by way of issuing subscription notices to Darwin. The subscription price for any Ordinary Shares to be subscribed by Darwin under a subscription notice will be at a 5.0% discount to an agreed reference price determined during 5, 10 or 15 trading days following delivery of a subscription notice.
Nighthawk has entered into a warrant agreement for the grant to Darwin of warrants to subscribe for up to 3,000,000 Ordinary Shares, such warrants to be exercisable at a price of 20 pence per share and to be exercisable at any time prior to the expiry of 36 months following the date of the warrant agreement. The agreement also grants to Darwin warrants to subscribe for up to 1,500,000 Ordinary Shares, exercisable at a price of 10 pence per share, to be exercisable 24 months after the signing of the agreement if Nighthawk does not make use of the Facility in this period or draws down less than £5 million during the first 24 months of the agreement.
There are no upfront costs associated with the Facility, other than both parties' legal fees. The Company intends to put resolutions to shareholders at the forthcoming annual general meeting to facilitate the utilisation of the Facility.
The EFF will give Nighthawk the financial flexibility to continue to develop Jolly Ranch and ultimately to deliver value for shareholders. The Board considered a number of financing options and it was clear that this route has the potential to deliver a lower level of dilution to existing shareholders as the Company will control the drawdown rate and the discount rate is considered by the board as more favourable than raising equity in the markets at present.
During the year under review the non-executive management was strengthened by the appointment of Stuart Eaton who was previously a senior fund manager at Insight Asset Management.
I would also like to take this opportunity to thank David Bramhill and Joe O'Farrell, who both left the Board in September 2010, for their contributions in getting the company to where it is today. We wish them all the best in their future endeavours.
Outlook
On the ground we expect the upcoming reserves report to continue to delineate the Jolly Ranch project and allow value to be defined accurately as we continue our development work. Over the coming weeks we will look closely at the current portfolio and its anticipated returns profile and look to adapt our strategy to ensure shareholders receive the best value as the Company grows. We look forward to updating the market with our progress in due course.
Timothy Heeley
CEO
20 October 2010
Consolidated Income Statement
for the year ended 30 June 2010
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| Notes | 2010 |
| 2009 |
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| US$ |
| US$ |
| Continuing operations: |
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| Revenue |
| 2,148,689 |
| 497,876 |
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|
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| Gross profit |
| 2,148,689 |
| 497,876 |
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| Administrative expenses |
| (3,699,775) |
| (2,511,055) |
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|
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| Operating loss |
| (1,551,086) |
| (2,013,179) |
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| Finance income |
| 269,257 |
| 338,121 |
| Loss on sale of available-for-sale investments |
| (1,263) |
| (19,587) |
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| Loss before taxation |
| (1,283,092) |
| (1,694,645) |
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| Taxation |
| - |
| - |
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| Loss for the financial year from continuing operations |
| (1,283,092) |
| (1,694,645) |
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| Discontinued operations: |
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| Profit for the financial year from discontinued operations |
| - |
| 396,557 |
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| Loss for the financial year |
| (1,283,092) |
| (1,298,088) |
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| Attributable to: |
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| Equity shareholders of the Company |
| (1,283,092) |
| (1,298,088) |
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| Loss per share from continuing and discontinued operations |
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| Basic and diluted loss per share (cents) | 2 | (0.40) |
| (0.55) |
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| Loss per share from continuing operations |
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|
|
|
|
|
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| Basic and diluted loss per share (cents) | 2 | (0.40) |
| (0.72) |
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2010
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| 2010 |
| 2009 |
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| US$ |
| US$ |
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| Loss for the financial year |
| (1,283,092) |
| (1,298,088) |
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| Other comprehensive income |
|
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|
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|
|
|
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| Fair value gain / (loss) on available-for-sale financial assets |
| 35,821 |
| (633,050) |
| Foreign exchange losses on consolidation |
| (1,247,565) |
| (2,408,499) |
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|
|
|
|
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|
|
|
|
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| Other comprehensive income for the financial year, net of tax |
| (1,211,744) |
| (3,041,549) |
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|
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|
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| Total comprehensive income for the financial year |
| (2,494,836) |
| (4,339,637) |
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Consolidated Balance Sheet
as at 30 June 2010
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| 2010 |
| 2009 |
| Assets |
| US$ |
| US$ |
| Non-current assets |
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| Property, plant and equipment |
| 24,575,543 |
| 11,769,386 |
| Intangible assets |
| 80,584,488 |
| 61,911,429 |
| Available-for-sale financial assets |
| 1,620,592 |
| 1,497,941 |
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| 106,780,623 |
| 75,178,756 |
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| Current assets |
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| Trade and other receivables |
| 701,169 |
| 179,824 |
| Cash and cash equivalents |
| 7,217,285 |
| 5,932,315 |
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| 7,918,454 |
| 6,112,139 |
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| Total Assets |
| 114,699,077 |
| 81,290,895 |
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| Equity and liabilities |
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| Capital and reserves attributable to the Company's equity shareholders |
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| Share capital |
| 1,480,731 |
| 1,219,415 |
| Share premium account |
| 119,252,765 |
| 84,546,504 |
| Foreign exchange translation reserve |
| (3,946,114) |
| (2,698,549) |
| Retained earnings |
| (6,885,690) |
| (5,638,419) |
| Share-based payment reserve |
| 889,972 |
| 815,639 |
| Merger reserve |
| 180,533 |
| 180,533 |
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| Total equity |
| 110,972,197 |
| 78,425,123 |
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| Current liabilities |
|
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| Trade and other payables |
| 3,726,880 |
| 2,865,772 |
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| Total liabilities |
| 3,726,880 |
| 2,865,772 |
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| Total equity and liabilities |
| 114,699,077 |
| 81,290,895 |
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Consolidated Statement of Changes in Equity
for the year ended 30 June 2010
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| Share capital | Share premium account | Foreign exchange translation reserve | Retained earnings | Share-based payment reserve | Merger reserve | Total |
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| US$ | US$ | US$ | US$ | US$ | US$ | US$ |
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| Balance at 1 July 2009 | 1,219,415 | 84,546,504 | (2,698,549) | (5,638,419) | 815,639 | 180,533 | 78,425,123 |
| For the year ended 30 June 2010 |
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| Loss for the year | - | - | - | (1,283,092) | - | - | (1,283,092) |
| Other comprehensive income: |
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|
|
|
|
| |
| Fair value gain on available-for-sale financial assets | - | - | - | 35,821 | - | - | 35,821 |
| Foreign exchange losses on consolidation | - | - | (1,247,565) | - | - | - | (1,247,565) |
| Total comprehensive income | - | - | (1,247,565) | (1,247,271) | - | - | (2,494,836) |
| Share-based payments | - | - | - | - | 74,333 | - | 74,333 |
| Issue of share capital | 261,316 | 36,322,869 | - | - | - | - | 36,584,185 |
| Issue costs | - | (1,616,608) | - | - | - | - | (1,616,608) |
| Balance at 30 June 2010
| 1,480,731 | 119,252,765 | (3,946,114) | (6,885,690) | 889,972 | 180,533 | 110,972,197 |
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|
|
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|
|
|
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|
| Balance at 1 July 2008 | 998,622 | 67,977,242 | (290,050) | (3,707,281) | 748,584 | 180,533 | 65,907,650 |
| For the year ended 30 June 2009 |
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| Loss for the year | - | - | - | (1,298,088) | - | - | (1,298,088) |
| Other comprehensive income: |
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|
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|
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| |
| Fair value loss on available-for-sale financial assets | - | - | - | (633,050) | - | - | (633,050) |
| Foreign exchange losses on consolidation | - | - | (2,408,499) | - | - | - | (2,408,499) |
| Total comprehensive income | - | - | (2,408,499) | (1,931,138) | - | - | (4,339,637) |
| Share-based payments | - | - | - | - | 67,055 | - | 67,055 |
| Issue of share capital | 220,793 | 17,442,667 | - | - | - | - | 17,663,460 |
| Issue costs | - | (873,405) | - | - | - | - | (873,405) |
| Balance at 30 June 2009
| 1,219,415 | 84,546,504 | (2,698,549) | (5,638,419) | 815,639 | 180,533 | 78,425,123 |
Consolidated Cash Flow Statement
for the year ended 30 June 2010
|
| Notes | 2010 |
| 2009 |
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| US$ |
| US$ |
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| Cash outflow from operating activities | 3 | (2,400,327) |
| (1,990,684) |
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| Cash flow from investing activities |
|
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| Purchase of intangible assets |
| (15,500,861) |
| (23,749,531) |
| Purchase of property, plant and equipment |
| (14,871,429) |
| (10,457,763) |
| Purchase of financial assets |
| - |
| (185,557) |
| Proceeds on disposal of financial assets |
| 84,526 |
| 747,153 |
| Dividend received |
| 78,775 |
| 138,051 |
| Proceeds from disposal of project |
| - |
| 5,000,000 |
| Interest received |
| 190,482 |
| 200,070 |
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| Net cash used in investing activities |
| (30,018,507) |
| (28,307,557) |
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| Cash flow from financing activities |
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| Proceeds on issue of new shares |
| 36,584,185 |
| 17,663,460 |
| Expenses of new share issue |
| (1,616,608) |
| (873,405) |
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| Net cash generated from financing activities |
| 34,967,577 |
| 16,790,055 |
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| Net increase / (decrease) in cash and cash equivalents |
| 2,548,743 |
| (13,508,186) |
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| Cash and cash equivalents at beginning of financial year |
| 5,932,315 |
|
21,067,305 |
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| Effects of exchange rate changes |
| (1,263,773) |
| (1,626,804) |
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| Cash and cash equivalents at end of financial year |
| 7,217,285 |
| 5,932,315 |
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Notes
1. Basis of Preparation
This announcement has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") applied in accordance with the provisions of the Companies Act 2006.
IFRS is subject to amendment and interpretation by the International Accounting Standards Board ("IASB") and the IFRS Interpretations Committee and there is an ongoing process of review and endorsement by the European Commission. These accounting policies comply with each IFRS that is mandatory for accounting periods ending on 30 June 2010.
2. Loss per share
Basic loss per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.
Given the Group's reported loss for the year, share options are not taken into account when determining the weighted average number of ordinary shares in issue during the year and therefore the basic and diluted earnings per share are the same.
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Basic loss per share | 2010 US cents | 2009 US cents |
|
Loss per share from continuing operations |
(0.40) |
(0.72) |
| Earnings per share from discontinued operations | - | 0.17 |
| Total basic loss per share | (0.40) | (0.55) |
|
The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows: |
2010 US$
|
2009 US$ |
|
|
|
|
| Earnings used in the calculation of total basic and diluted earnings per share | (1,283,092) | (1,298,088) |
|
|
|
|
| Profit for the year from discontinued operations used in the calculation of basic and diluted earnings per share from discontinued operations | - | 396,557 |
|
|
|
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| Earnings used in the calculation of basic earnings per share from continuing operations | (1,283,092) | (1,694,645) |
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|
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|
| 2010 | 2009 |
|
Number of shares |
|
|
|
Weighted average number of ordinary shares for the purposes of basic loss per share |
321,210,436 |
234,475,130 |
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| If the Company's share options were taken into consideration in respect of the Company's weighted average number of ordinary shares for the purposes of diluted earnings per share, it would be as follows: |
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|
|
|
|
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| Number of shares |
|
|
| Weighted average number of ordinary shares for the purposes of diluted earnings per share | 327,460,436 | 241,100,472 |
3. Cash outflow from operating activities
|
| 2010 US$ | 2009 US$ |
|
|
|
|
| Loss for the financial year | (1,283,092) | (1,298,088) |
| Finance income | (269,257) | (338,121) |
| Share-based payment | 74,333 | 67,055 |
| Loss on disposal of available-for-sale investments | 1,263 | 19,587 |
| Gain on disposal of business | - | (370,321) |
| Depreciation | 52,852 | 11,892 |
| Amortisation | 4,141 | 4,353 |
| Net foreign exchange gain | (157,498) | (181,000) |
|
| (1,577,258) | (2,084,643) |
| Changes in working capital |
|
|
| Increase in trade and other receivables | (521,345) | (45,285) |
| (Decrease)/increase in trade and other payables | (301,724) | 139,244 |
|
|
|
|
| Net cash outflow from operating activities | (2,400,327) | (1,990,684) |
4. Publication of non-statutory accounts
The financial information set out in this announcement does not comprise the Group's statutory accounts for the years ended 30 June 2010 or 30 June 2009.
The financial information has been extracted from the statutory accounts of the Company for the year ended 30 June 2009 which have been delivered to the Registrar of Companies. The auditors' opinion on those accounts was unqualified and did not contain a statement under section 498 (2) or section 498 (3) Companies Act 2006 and did not include references to any matters to which the auditor drew attention by the way of emphasis. The statutory accounts for the year ended 30 June 2010 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting.
5. Annual Report and AGM
The Annual Report will be available from the Company`s website, www.nighthawkenergy.com, from 21 October 2010 and will be posted to shareholders by 28 October 2010. The Annual Report contains notice of the Annual General Meeting of the Company which will be held at 9.00 a.m. on 1 December 2010 at the offices of Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB.