27 Oct 2008 07:00
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, are pleased to announce the Company's final results for the year ended 30 June 2008.
HIGHLIGHTS
Seven wells drilled to date on Jolly Ranch project in Colorado all encountered hydrocarbons in multiple formations
Excellent test flow rates from Jolly Ranch wells targeting the Lower Atoka shales
The Atoka and Cherokee shales represent an emerging regional shale play which is believed to cover the whole project area in excess of 300,000 acres (gross)
Aggressive drilling and development programme on the Buchanan Group, Devon Oilfield and Xenia waterflood projects with production anticipated to increase significantly
Potential of the Mancos formation confirmed at Cisco Springs
Franklin 13-6 well completed as an oil producer at Centurion
David Bramhill, Managing Director of Nighthawk, commented: "Nighthawk has made excellent progress. The drilling programme to date on Jolly Ranch has greatly exceeded our expectations. Test flow rates have been excellent and the wells are being moved on to production. There has also been an active drilling and development programme on our waterflood projects, the Buchanan Group, Devon and, the most recent acquisition, Xenia. With the waterflooding taking effect over the next few months, we anticipate seeing production levels rising significantly.
"We expect to see Nighthawk making a major transition from development to production over the next 12 months and we look forward to reporting our progress."
Enquiries:
| Nighthawk Energy plc | 01271 882160 |
| David Bramhill, Managing Director | office@nighthawkenergy.net |
| www.nighthawkenergy.com | |
| Hanson Westhouse Limited | 0113 246 2610 |
| Tim Feather Matthew Johnson | tim.feather@hansonwesthouse.com matthew.johnson@hansonwesthouse.com |
| Bishopsgate Communications Limited | 020 7562 3366 |
| Nick Rome | nick@bishopsgatecommunications.com |
Managing Director's Statement
I am pleased to report to shareholders on the excellent progress made by Nighthawk Energy plc ("Nighthawk") during the year ended 30 June 2008.
Nighthawk is focused on the development of, and production from, hydrocarbon projects in the United States. The Company holds substantial equity in seven projects across the US mid-continent, all of which are operated by Running Foxes Petroleum Inc. ("Running Foxes"), Nighthawk's partner and holder of the remaining interest in each project.
Of our seven projects, six are either in production or at the development stage and we expect all of our projects to make a material contribution to the value of the Company in the future. Further details on each of the projects are set out below and in the Review of Operations in the Annual Report.
Our short term objective is to become self funding whilst generating significant value for shareholders through the successful development of Nighthawk's projects. The excellent drilling and testing results to date from the Jolly Ranch project, which incorporates the Middle Mist and Mustang Creek acreages, suggest that our short term objective will be achieved during the current financial year. We believe that the continuing successful development of Jolly Ranch will transform both the cash flow and reserve base of the Company.
Review of Projects
Jolly Ranch Group project
In April 2008 following a programme of 3D seismic acquisition, our first well at the Jolly Ranch project in Colorado, the Jolly 2-1, was spudded. This resulted in the discovery of multiple hydrocarbon bearing horizons including both conventional and non-conventional producing formations. A further six wells have since been drilled to date, all of which have encountered similar production zones to the Jolly 2-1. Excellent flow rates have been reported on test, in particular from the Jolly 16-1 well which flowed 446 barrels of oil and over one million cubic feet of gas on a 24 hour test.
Three wells, the Jolly 2-1, Jolly 16-1 and Craig 8-1, are now on production with the remainder at various stages of testing and completion for production. A major development programme is now underway on the project targeting primarily the Atoka and Cherokee shales, the Marmaton carbonate formation, and the Codell sandstone.
The Board and Running Foxes believe that the Atoka and Cherokee shales represent an emerging regional shale oil play which covers the entire Jolly Ranch acreage of over 225,000 net acres. In recent years in the United States, shale plays, including the Barnett, Bakken, Haynesville, Marcellus and Woodford shales, have become some of the largest and most profitable hydrocarbon producers.
Buchanan Group, Devon Oilfield and Xenia waterflood projects
Excellent progress is also being made on our waterflood projects, comprising the Buchanan Group, the Devon Oilfield and Xenia, which are located around the Missouri/Kansas border. On these projects, which cover a combined acreage of over 44,000 acres, over 80 successful development wells have been drilled. The average oil in place per well is approximately 250,000 barrels and a recovery rate of between 20 to 50% is expected. In addition, gas is being produced and sold from a number of these wells.
Due to the shallow nature of the producing formations, between 200 and 600 feet, the reservoirs are typically underpressured and a waterflood process is required to obtain optimum recovery. This process involves the drilling of water injection wells to flood the reservoir and drive the hydrocarbons into the production well bore. Waterflooding takes approximately six months from injection to achieve meaningful production. This process is inexpensive, relatively simple to implement and is a proven technique in the industry for the extraction of oil from shallow reservoirs. The geology of the reservoirs is straightforward and wells are being drilled and completed within two days.
Each well costs in the region of US$40,000 to completion. Using a conservative per well production rate of 5 barrels of oil per day ("BOPD") and an oil price of US$60, payback of costs should occur approximately six months following waterflooding. Within the next year we expect to have at least 100 wells in production across the waterflood projects, each generating between 5 and 20 BOPD (gross). These figures will have a significant impact on Nighthawk's production profile during 2009, complementing the expected ramp-up in production from Jolly Ranch.
Cisco Springs
At the time of the Company's admission to AIM in March 2007, Nighthawk's project portfolio consisted solely of a 37.5% interest in the Cisco Springs natural gas project located in Utah.
Our interest in Cisco Springs, which increased to 50% during the year remains a valuable asset. To date, 32 wells have been cased for production and a development programme continues.
Commissioning of the Broadhead tap and gathering facilities took place in December 2007 and successful discoveries continue to be hooked up for future production.
An independent reserve update in respect of Cisco Springs was conducted by Oilfield Production Consultants Limited and 2P natural gas reserves were calculated to be 121 billion cubic feet of gas and 3.8 million barrels of oil net to Nighthawk. In addition, the potential of the Mancos Shale, a further formation in the region was confirmed.
Following a period of soft gas prices over the summer, the Cisco Springs region is beginning to see the start of the seasonal strong uplift in demand for natural gas and prices are increasing. Ancillary oil production continues at a rate of 10-20 BOPD.
Centurion
Two exploration wells have been drilled at the Centurion project in southern Kansas. The Franklin 13-6 well encountered excellent live oil shows and strong gas kicks throughout a 60 foot pay zone in the Mississippian Chattanooga shale, a major reservoir in the area. This well has been completed as an oil producer. The Atoka-Nighthawk 13-11 is under test for gas.
Cliffs
The Cliffs project, located in the Illinois Basin, will target gas in the Devonian New Albany shales. We view Cliffs as a longer term play.
Project Prioritisation
Nighthawk, together with its partner, Running Foxes, has during the last 18 months drilled in excess of 100 wells spread over the portfolio of projects. Ongoing evaluation of these results and other technical data have clearly exhibited to the Board a major difference between the projects in both scalability and, most importantly, the capability of generating sizeable near term production and cash flow.
The Directors strongly believe that results from both Jolly Ranch and the waterflood projects are such that the potential returns from these ventures in terms of likely proven reserves and cash flow will be a multiple of those from the other projects, including Cisco Springs. For this reason, in conjunction with Running Foxes, the Directors took the decision, whilst still advancing the other projects, to focus resources on Jolly Ranch and the waterflood projects with the objective of growing production and cash flow in the near term.
Corporate and Financial
The accounts for the year ended 30 June 2008 are the first to be prepared under International Financial Reporting Standards ("IFRS") and a full explanation of the transition to IFRS is provided in the notes to the financial information in the Annual Report.
The financial results for the year ended 30 June 2008 continue to reflect the operations of an active hydrocarbon development company. Of our seven projects, six are now either in production or in the development phase and the results of this transition will begin to be reflected in the half yearly report to 31 December 2008. Revenue is expected from Jolly Ranch, Buchanan Group, Devon Oilfield, Xenia, Cisco Springs and Centurion projects.
Funding
During January 2008, Nighthawk raised £14 million (before expenses) through a placing of new shares.
Summary
Nighthawk made exceptional progress during the year ended 30 June 2008 and we expect to see a major transition from development to production over the next 12 months.
I would like to take this opportunity to thank our shareholders, my fellow directors and management, advisers in the UK and the US and, in particular, our partner Running Foxes Petroleum for all their efforts.
We look forward to reporting on further progress over the coming months.
David Bramhill
Managing Director
24 October 2008
The preliminary announcement was approved by the Board of directors on 24 October 2008
Consolidated Income Statement
for the year ended 30 June 2008
| 2008 US$ | 2007 US$ | ||
| Revenue | 138,998 | 131,933 | |
| Unsuccessful exploration costs | (316,370) | - | |
| Gross (loss)/profit | (177,372) | 131,933 | |
| Administrative expenses | (3,272,928) | (1,590,220) | |
| Exceptional administrative expenses | - | (396,611) | |
| Total administrative expenses | (3,272,928) | (1,986,831) | |
| Operating loss | (3,450,300) | (1,854,898) | |
| Finance income | 985,243 | 344,385 | |
| (Loss)/profit on sale of available for sale investments | (26,421) | 27,080 | |
| Loss before taxation | (2,491,478) | (1,483,433) | |
| Taxation | - | - | |
| Loss for the financial year | (2,491,478) | (1,483,433) | |
| Attributable to: Equity shareholders of the Company | (2,491,478) | (1,483,433) | |
| Loss per share from continuing operations attributable to the equity shareholders | |||
| Basic and diluted loss per share (cents) | 2 | (1.34) | (1.31) |
The operating loss in the current year arises from continuing activities.
Consolidated Balance Sheet
as at 30 June 2008
| 2008 US$ | 2007 US$ | ||
| ASSETS | |||
| Non-current assets | |||
| Property, plant and equipment | 2,196,494 | 680,411 | |
| Intangible assets | 41,499,037 | 14,715,755 | |
| Investment in associate undertaking | - | 505,999 | |
| Available-for-sale financial assets | 3,305,756 | 1,537,499 | |
| 47,001,287 | 17,439,664 | ||
| Current assets | |||
| Trade and other receivables | 134,539 | 397,634 | |
| Cash and cash equivalents | 21,067,305 | 22,611,746 | |
| 21,201,844 | 23,009,380 | ||
| TOTAL ASSETS | 68,203,131 | 40,449,044 | |
| EQUITY AND LIABILITIES | |||
| Capital and reserves attributable to the Company's equity shareholders | |||
| Share capital | 998,622 | 811,169 | |
| Share premium account | 67,977,242 | 40,353,576 | |
| Foreign exchange translation reserve | (290,050) | (336,441) | |
| Retained earnings | (3,707,281) | (1,567,813) | |
| Share-based payment reserve | 748,584 | 83,068 | |
| Merger reserve | 180,533 | 180,533 | |
| Total equity | 65,907,650 | 39,524,092 | |
| Current liabilities | |||
| Trade and other payables | 2,295,481 | 924,952 | |
| Total liabilities | 2,295,481 | 924,952 | |
| TOTAL EQUITY AND LIABILITIES | 68,203,131 | 40,449,044 |
Consolidated Cash Flow Statement
for the year ended 30 June 2008
| Note | 2008 US$ | 2007 US$ | |
| Cash outflow from operating activities | 3 | (608,593) | (2,277,193) |
| Cash flow from investing activities | |||
| Purchase of investment in associated undertaking | - | (505,999) | |
| Purchase of intangible assets | (27,111,791) | (15,097,021) | |
| Proceeds on disposal of intangible assets | 6,402 | 140,084 | |
| Purchase of property, plant and equipment | (1,094,380) | (241,196) | |
| Proceeds on disposal of property, plant and equipment | 6,208 | 1,352 | |
| Purchase of financial assets | (1,755,506) | (1,740,511) | |
| Proceeds on disposal of financial assets | 305,974 | 203,012 | |
| Dividend received | 98,580 | 23,819 | |
| Net cash used in investing activities | (29,544,513) | (17,216,460) | |
| Cash flow from financing activities | |||
| Proceeds on issue of new shares | 29,207,213 | 40,770,466 | |
| Expenses of new share issue | (1,396,094) | (2,496,073) | |
| Interest received | 886,663 | 320,566 | |
| Net cash generated from financing activities | 28,697,782 | 38,594,959 | |
| Net (decrease)/increase in cash and cash equivalents | (1,455,324) | 19,101,306 | |
| Cash and cash equivalents at beginning of financial year | 22,611,746 | 3,176,113 | |
| Effects of exchange rate changes on the balance of cash held in foreign currencies | (89,117) | 334,327 | |
| Cash and cash equivalents at end of financial year | 21,067,305 | 22,611,746 |
Notes
1. Basis of preparation
The preliminary announcement has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and applied in accordance with the provisions of the Companies Act 1985. The financial statements have been prepared under the historical cost convention as modified by the revaluation of available-for-sale investments which are carried at fair value.
The policies have changed from the previous year when the financial statements were prepared under applicable United Kingdom Generally Accepted Accounting Principles (UK GAAP). The comparative information has been restated in accordance with IFRS.
In addition, in preparing the financial statements for the year ended 30 June 2008, the Group has adopted the more common successful efforts method of accounting for oil and gas assets. In the year ended 30 June 2007, the Group had followed the full cost method of accounting for oil and gas assets. The change in accounting policy has had no impact on the results for the year ended 30 June 2007. No prior year adjustment was therefore deemed necessary.
2. Loss per share
Basic loss per share is calculated by dividing the loss 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 loss per share are the same.
| 2008 US$ | 2007 US$ | |
| Loss per share from continuing operations attributable to the equity shareholders Loss for the purposes of basic and diluted loss per share being net loss attributable to equity shareholders | (2,491,478) | (1,483,433) |
| Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share | 185,983,238 | 112,893,363 |
| Loss per share Basic and diluted loss per share (cents) | (1.34) | (1.31) |
| 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 loss per share, it would be as follows: | ||
| Number of shares Weighted average number of ordinary shares for the purposes of diluted loss per share | 194,743,581 | 129,179,077 |
3. Cash outflow from operating activities
| 2008 US$ | 2007 US$ | |
| Loss for the financial year | (2,491,478) | (1,483,433) |
| Investment income | (985,243) | (344,385) |
| Transfer to share option reserve | 665,516 | 83,068 |
| Loss/(profit) on disposal of available for sale investments | 26,421 | (27,080) |
| Profit on disposal of property plant and equipment | (1,311) | - |
| Depreciation | 78,100 | 26,275 |
| Amortisation | 4,730 | 79,345 |
| Impairment of exploration costs | 316,370 | - |
| Net foreign exchange movement | 144,677 | (670,768) |
| (2,242,218) | (2,336,978) | |
| Changes in working capital Decrease/(increase) in trade and other receivables | 263,096 | (305,177) |
| Increase in trade and other payables | 1,370,529 | 364,962 |
| Net cash outflow from operating activities | (608,593) | (2,277,193) |
4. Publication of non-statutory accounts
The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985.
The summarised consolidated balance sheet at 30 June 2008, the summarised consolidated income statement, the summarised consolidated cash flow statement and the associated notes for the year then ended have been extracted from the Group's 30 June 2008 statutory financial statements upon which the auditor's opinion is unqualified and does not include any statement under section 237 of the Companies Act 1985.
Those financial statements have not yet been delivered to the Registrar of Companies.
5. Annual Report and AGM
The Annual Report will be available from the Company's website, www.nighthawkenergy.com, from 27 October 2008 and posted to shareholders by 2 November 2008. The Annual Report contains notice of the Annual General Meeting of the Company which will be held at 11.00 a.m. on 26 November 2008 at the offices of Grant Thornton UK LLP, 30 Finsbury Square, London EC2P 2YU.