23 Mar 2010 07:00
NIGHTHAWK ENERGY PLC
("Nighthawk" or "the Company")
Half Yearly Report
Nighthawk, the US focused hydrocarbon development and production company (AIM: HAWK and OTCQX: NHEGY), announces its half yearly results for the six months ended 31 December 2009. Nighthawk's strategy is to create value by building a scalable hydrocarbon company focused on low risk, high reward assets in a politically and fiscally stable environment.
Financial Highlights
·; Total assets increased 65% to US$115.5 million (2008: US$69.9 million)
·; Revenue increased 218% to US$1.01 million (2008: US$0.32 million)
·; Institutional placing raised US$36.5 million (before expenses) to strengthen balance sheet and fund ongoing development
·; US listing on the OTCQX International platform with fully sponsored ADR programme
·; The Company remains debt free
Operational Highlights
·; Successful six well winter drilling campaign completed at Jolly Ranch
·; Schlumberger commenced new evaluation of Jolly Ranch
·; Proven, Probable and Possible gas reserve evaluation underway on Xenia acreage at the Revere project
·; Expanded infrastructure at Revere with the completion of the 26 kilometre Xenia gas pipeline and purchase of 50% interest in Bourbon County gas pipeline
David Bramhill, Managing Director of Nighthawk, commented:
"We continue to be encouraged by the progress we are making with our operations. Over 260 wells deemed commercial have been drilled, cased and completed during the past 30 months and we are beginning to see progress with production. At Jolly Ranch we are applying the optimal completion techniques to the existing wells, and are focused on increasing production as rapidly as possible from the current base.
"In Jolly Ranch we believe that Nighthawk can achieve its ambitions by proving up the project to a level that establishes a high value shale oil play similar to other prolific US shale oil projects."
| Nighthawk Energy plc David Bramhill, Managing Director Tim Heeley, Commercial Director |
01271 882160 07956 525433 020 7887 1453 |
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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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| Bishopsgate Communications Limited Nick Rome | 020 7562 3395 nick@bishopsgatecommunications.com |
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| Financial Dynamics Ben Brewerton Ed Westropp
| 020 7831 3113 ben.brewerton@fd.com edward.westropp@fd.com |
Managing Director's Statement
Financial and Corporate Overview
The financial results for the period reflect the operations of an active hydrocarbon development company.
Substantial funds are being invested into our core projects, Jolly Ranch and Revere, contributing to the increase of Nighthawk's total assets from US$81.3 million at 30 June 2009 to US$115.5 million at 31 December 2009 demonstrating the pace of development. Approximately US$19 million net has been invested in development during the six months. All costs are shared on a pro rata basis with our partner and operator of the projects, Running Foxes Petroleum Inc.
Production revenues increased more than threefold over the comparative period in 2008 to US$1.01 million. Significantly, this is more than twice the revenue for the whole of the year ended 30 June 2009. This has been achieved through organic growth in production, a trend that is set to continue and accelerate as more appraisal wells are put on stream at Jolly Ranch and water injection and other production enhancements at Revere take effect.
The absence of the significant foreign exchange gains seen last year and low interest rates contributed to the increased loss of US$746,310 for the period.
An institutional placing, completed in July 2009, raising US$36.5 million before expenses, strengthened the Company's capital base ensuring that funds were in place for continuing development. Nighthawk remains debt free.
In order to exploit increasing interest in the Company from US investors Nighthawk obtained a quotation on the OTCQX International Platform in New York, complementing the Company's AIM quotation. In addition, Nighthawk has undertaken a Level 1 American Depository Receipt ("ADR") programme fully sponsored by The Bank of New York Mellon.
In February 2010, post the period end, Stuart Eaton joined Nighthawk as a non-executive director. Prior to joining the Company, Stuart was head of UK Equity Alpha at Insight Investment Management Limited. In addition, Stuart has held senior positions at Newton Investment Management and Provident Mutual Life Assurance. Stuart, who has been a significant investor in the oil and gas sector, brings additional corporate governance experience to Nighthawk during a critical period in its growth phase.
Jolly Ranch Group
Nighthawk holds a 50% interest in the Jolly Ranch Group Project ("Jolly Ranch"), covering approximately 370,000 gross acres in Lincoln, Elbert and Washington Counties, Colorado. Jolly Ranch has multiple conventional and non-conventional oil producing horizons. Nighthawk is primarily targeting Pennsylvanian age formations such as the Marmaton carbonate and the Cherokee and Atoka shales.
The immediate focus at Jolly Ranch continues to be the refinement of completion techniques critical for understanding the optimum recovery profile for each individual shale formation and to increase production levels.
Once producibility and economic parameters are exhibited, sometimes even on a relatively small core area, this type of project can command an exceptional exit price. The conventional Marmaton horizon adds an already proven high value element to the project. Being the shallowest production zone at Jolly Ranch, the Marmaton will be best exploited following the successful development of the Atoka and Cherokee shales, the main focus of the project.
In Jolly Ranch we believe that the Company can achieve its ambitions by proving up the project to a level that establishes a high value shale oil play similar to other prolific US shale oil projects.
To date, 13 deep wells have been drilled, classified as appraisal successes and cased and completed as producers. Eleven of these wells have seen initial testing and production of in excess of 24,000 barrels of good quality oil (32-41 API gravity) from various horizons under test conditions. At present, four wells are on production with an aggregate gross daily output ranging from 150 to 200 barrels of oil per day. The operator anticipates an upward trend in production as the remaining wells are brought into production with an initial target of 1,000 barrels of oil per day by the end of 2010. Two additional wells are being utilised as salt-water disposal wells in order to lower water transportation costs.
In July 2009 Schlumberger Data & Consulting Services ("Schlumberger") reported that the P50, or most likely, oil in place in the three primary formations over approximately two-thirds of the acreage held is 1.462 billion barrels gross. In addition, the assessment stated that there is reasonable certainty of reservoir and source rock continuity. Subsequent drilling and development has confirmed this continuity in respect of the shales over an expanding core area. Log analysis of oil in place from numerous wells drilled confirms or exceeds the figures indicated within the independent report.
In addition to drilling, we have constructed further production, storage and off-take infrastructure at Jolly Ranch.
A 25,000 acre 3-D seismic acquisition and interpretation programme is also underway. The results to date have been encouraging and the next drilling campaign, expected to commence in Q2 2010, will incorporate new and additional targets following the identification of certain seismic and petrophysical indicators, such as natural fracture mechanisms, which could indicate areas of optimum production.
Schlumberger has been engaged to compile an extended modeling and reservoir simulation project on behalf of Nighthawk utilising data from the extensive drilling and development activities undertaken over the months since their last report. A detailed reservoir simulation model for the Jolly Ranch area will be generated which can be used for the development of oil production profiles and EUR (Estimated Ultimate Recovery) data. The results of this study will then be used as the basis of an independent reserves assessment.
Preliminary project economics based on a single vertical well have been compiled by Nighthawk using PetroScope, a Deloitte proprietary financial software package, and by Benavides Petroleum Engineering Inc., a Denver based consultancy. The studies indicate the project concept to be economically viable, with net backs to Nighthawk of approximately 40% in a US$70 per barrel price environment and demonstrate high rates of return on investment of in excess of 330% on a 10% discounted, through life of well, basis.
Revere Project
The Revere project covers in excess of 40,000 acres following the consolidation of the Devon Oilfield (Nighthawk 80% net working interest), Buchanan (Nighthawk 50% net working interest) and Xenia (Nighthawk 50% net working interest) projects, all located on or around the state border of Kansas and Missouri. Running Foxes, the operator, holds the remaining interests.
On the Revere project there are currently:
·; 157 production wells
·; 47 injection wells
·; A further 69 wells drilled and awaiting completion
·; 107 wells permitted
Revere is a relatively low cost, high upside development project. The shallow reservoir depths range from 350 to 800 feet. The primary production formations are the Bartlesville and McClouth for the Devon and Buchanan oil waterflood projects, and the Riverton Coal, Excello and Osage Shale formations for the Xenia gas project.
Aggregate production from Revere is currently averaging over 200 barrels of oil equivalent per day ("boepd"). The operator has indicated that production is expected to increase to at least 500 boepd during 2010.
During 2009, Oilfield Production Consultants Limited ("OPC"), independent consultants, reported that the P50, or most likely, STOOIP figure was 217.36 million barrels (gross) for the Devon, Buchanan and Xenia sections of Revere. OPC also commented that this figure is expected to rise significantly on further development of the outlying acreage.
In addition, OPC commenced an evaluation of the gas in place in respect of Xenia. This evaluation was expected to be completed by the end of 2009; however following excellent drilling results, the initial scope of the study has been extended and OPC will now report on Proven, Probable and Possible reserves rather than solely gas in place figures.
During the period, Nighthawk acquired further land surrounding Xenia increasing the acreage from an initial 3,708 acres to approximately 6,000 acres.
A 13 well drilling programme is underway on the Xenia acreage. The two wells drilled in this programme to date, the Williams 10-27 and the Danley 9-34B, have both produced good results.
In addition to the gas at Xenia there is also oil potential which is currently being investigated. Running Foxes has identified nine historic abandoned oil wells on the recently acquired leases that are believed capable of modest primary production prior to waterflooding. Adjacent to this lease another operator has oil wells in production and Nighthawk and Running Foxes hold the undrilled acreage offsetting these wells. The current plan is to determine the integrity and capability of the wells, install tank batteries for oil storage within the location and, where appropriate, bring the wells into production.
Cumulative gross production to date from Xenia since gas began flowing in November 2009 is approximately 95 million cubic feet ("MMcf") and daily production ranges from between 500,000 to 750,000 cubic feet per day. The operational plan for 2010 at Xenia is to increase gas production to a target of 1.5 MMcf per day. Once this is achieved targets will be raised again and infrastructure expansion will be considered.
All wells at Xenia have been converted to remote monitoring which has reduced pumping costs on the project. It is anticipated that all Revere wells will be converted in due course.
During November 2009, Nighthawk and Running Foxes completed the construction of the 26 kilometre, 5 MMcf per day capacity Xenia pipeline on time and within budget. In addition, Nighthawk purchased a 50% working interest in the 39 kilometre Bourbon County Pipeline. These pipelines enable the monetisation of the gas production throughout Revere and substantially reduce transportation fees for the export of the gas to the Southern Star (a division of General Electric) pipeline.
Devon, which is the smallest project by area in the Revere portfolio, is generating improving production results and waterflooding is ongoing.
The Buchanan area, although not as advanced as Devon, is delivering production and a number of recently commissioned water injectors are now operational and should deliver improved production levels during 2010. A recent initiative by the operator to introduce a small hydraulic fracture on each of the injector wells also appears to be having a beneficial effect on production levels.
The Emerson lease, which is part of Buchanan, is seeing modest production despite there being no water injection in place at present. Injectors have been permitted and should give a significant increase in production when implemented. Production wells are also being drilled as the limits of the field have yet to be defined.
Cisco Springs
Nighthawk holds a 50% net working interest in the Cisco Springs project located in Grand County, Utah, covering approximately 24,000 acres.
To date, 32 wells have been drilled at Cisco Springs resulting in 30 natural gas appraisal discoveries. In addition, there are approximately 70 historic wells that were part of the original purchase package that have been successfully re-entered and evaluated by wireline log analyses.
Net 2P deterministic reserves evaluated independently by OPC stand at a total of 121 billion cubic feet of natural gas and 3.8 million barrels of oil respectively.
Comprehensive infrastructure and full production facilities are in place for both gas and oil production. A small amount of oil, gas and NGL's (Natural Gas Liquids) are being produced and sold. In respect of gas sales the volumes remain curtailed due to the continued low regional gas prices. As a result Cisco, whilst an important and valuable element of the overall portfolio, remains a secondary focus to Jolly Ranch and Revere.
Cliffs
Nighthawk holds an 80% interest in the Cliffs project, located in Clark, Cumberland, Jasper and Crawford Counties, Illinois, covering approximately 15,000 acres.
The project is located within the Illinois Basin, a significant producer of hydrocarbons that has yielded in excess of four billion barrels of oil from numerous reservoirs at less than 2,900 feet.
The primary target is the New Albany Shale, which has been the subject of ongoing investigation in recent years. Running Foxes has identified a major structural flexure within the project acreage.
Due to our focus on and the potential of Nighthawk's two core projects, Jolly Ranch and Revere, the potential disposal of this interest is under review.
Summary
Over 260 wells deemed commercial have been drilled, cased and completed during the past 30 months. Nighthawk and its partner, Running Foxes, are continuing to develop the existing acreage and, where further substantial reserves are indicated, extending land positions.
External evaluations have been and continue to be completed by Schlumberger and OPC, both internationally respected industry consultants, forming an independent validation across our portfolio of projects.
The nature of our assets means that we are gradually building production and value. As the proving up of our core projects continues, we expect the inherent value to become more apparent without exploration risk as all wells drilled are in the appraisal category.
Nighthawk's principal aims for the remainder of 2010 are to:
·; Continue to increase production levels, 2P reserves and the technical understanding of our assets to underpin a per acre valuation typical of other US shale oil plays, and
·; Enhance visibility with investors in Europe and the US and increase institutional ownership from the existing free float to ensure consistent market alignment with the value of our assets.
Nighthawk is well positioned for the future and I remain confident that significant progress will be achieved towards our goals in 2010.
David Bramhill
Managing Director
Unaudited Condensed Consolidated Income Statement
for the six months ended 31 December 2009
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| Notes | Six months ended 31 December 2009 | Six months ended 31 December 2008 | Year ended 30 June 2009 |
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| US$ | US$ | US$ |
| Continuing operations: |
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| Revenue |
| 1,013,846 | 318,930 | 497,876 |
| Administrative expenses |
| (1,905,437) | (947,844) | (2,511,055) |
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| Operating loss |
| (891,591) | (628,914) | (2,013,179) |
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| Finance income |
| 149,378 | 282,483 | 338,121 |
| Loss on disposal of financial assets |
| (4,097) | (1,130) | (19,587) |
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| Loss before taxation |
| (746,310) | (347,561) | (1,694,645) |
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| Taxation | 2 | - | - | - |
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| Loss for the financial period from continuing operations |
| (746,310) | (347,561) |
(1,694,645) |
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| Profit for the financial period from discontinued operations |
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- |
- |
396,557 |
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| Loss for the financial period |
| (746,310) | (347,561) | (1,298,088) |
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| Attributable to: Equity shareholders of the Company |
| (746,310) | (347,561) |
(1,298,088) |
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| Loss per share from continuing operations attributable to the equity shareholders of the Company |
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| Basic and diluted loss per share (US cents) | 1 | (0.24) | (0.17) | (0.55) |
Unaudited Condensed Consolidated Statement of Comprehensive Income
for the six months ended 31 December 2009
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| Notes | Six months ended 31 December 2009 | Six months ended 31 December 2008 | Year ended 30 June 2009 |
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| US$ | US$ | US$ |
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| Loss for the financial period |
| (746,310) | (347,561) | (1,298,088) |
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| Other comprehensive income |
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| Fair value loss on available-for-sale financial assets |
| (38,157) | (876,946) | (633,050) |
| Foreign exchange gains / (losses) on consolidation |
| 54,482 | (2,984,266) | (2,408,499) |
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| Other comprehensive income for the financial period, net of tax |
| 16,325 | (3,861,212) | (3,041,549) |
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| Total comprehensive income for the financial period |
| (713,660) | (4,208,773) |
(4,339,637) |
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Unaudited Condensed Consolidated Balance Sheet
as at 31 December 2009
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| Notes | 31 December 2009 | 31 December 2008 | 30 June 2009 |
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| US$ | US$ | US$ |
| Assets |
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| Non-current assets |
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| Property, plant and equipment |
| 20,257,172 | 7,478,819 | 11,769,386 |
| Intangibles |
| 72,346,141 | 57,019,520 | 61,911,429 |
| Financial assets |
| 1,674,344 | 1,486,063 | 1,497,941 |
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| 94,277,657 | 65,984,402 | 75,178,756 |
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| Current assets |
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| Trade and other receivables |
| 616,624 | 229,573 | 179,824 |
| Cash and cash equivalents |
| 20,627,643 | 3,656,040 | 5,932,315 |
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| 21,244,267 | 3,885,613 | 6,112,139 |
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| Total Assets |
| 115,521,924 | 69,870,015 | 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 | 1,094,668 | 1,219,415 |
| Share premium account |
| 119,269,072 | 75,164,716 | 84,546,504 |
| Foreign exchange translation reserve |
| (2,644,065) | (3,274,316) | (2,698,549) |
| Retained earnings |
| (6,422,886) | (4,931,788) | (5,638,419) |
| Share-based payment reserve |
| 856,130 | 788,027 | 815,639 |
| Merger reserve |
| 180,533 | 180,533 | 180,533 |
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| Total equity |
| 112,719,515 | 69,021,840 | 78,425,123 |
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| Current liabilities |
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| Trade and other payables |
| 2,802,409 | 848,175 | 2,865,772 |
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| Total Equity and Liabilities |
| 115,521,924 | 69,870,015 | 81,290,895 |
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Unaudited Condensed Consolidated Cash Flow Statement
for the six months ended 31 December 2009
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| Notes | Six months ended 31 December 2009 | Six months ended 31 December 2008 | Year ended 30 June 2009 |
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| US$ | US$ | US$ |
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| Cash outflow from operating activities |
| (630,070) | (644,092) | (1,990,684) |
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| Cash flow from investing activities: |
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| Purchase of intangible non current assets |
| (11,962,667) | (21,941,109) | (23,749,531) |
| Purchase of property, plant and equipment |
| (7,681,025) | (825,275) | (10,457,763) |
| Purchase of financial assets |
| - | (39,846) | (185,557) |
| Proceeds on disposal of financial assets |
| 81,692 | 73,261 | 747,153 |
| Dividend received |
| 36,844 | 81,653 | 138,051 |
| Proceeds on disposal of project |
| - | - | 5,000,000 |
| Interest received |
| 112,535 | 200,830 | 200,070 |
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| Net cash outflow from investing activities |
| (19,412,621) | (22,450,486) | (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 | 7,683,700 | 17,663,460 |
| Share issue costs |
| (1,600,300) | (400,179) | (873,405) |
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| Net cash inflow from financing activities |
| 34,983,885 | 7,283,521 | 16,790,055 |
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| Net increase/(decrease) in cash and cash equivalents |
| 14,941,194 | (15,811,057) | (13,508,186) |
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| Cash and cash equivalents at beginning of period |
| 5,932,315 | 21,067,305 | 21,067,305 |
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| Effects of foreign exchange movements |
| (245,866) | (1,600,208) | (1,626,804) |
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| Cash and cash equivalents at end of period |
| 20,627,643 | 3,656,040 | 5,932,315 |
Notes to the Unaudited Financial Information
for the six months ended 31 December 2009
Accounting policies
The interim financial information in this report has been prepared on the basis of the accounting policies set out in the audited financial statements for the year ended 30 June 2009 (except as described below), which complied with International Financial Reporting Standards as adopted for use in the European Union ("IFRS").
IFRS is subject to amendment and interpretation by the International Accounting Standards Board ("IASB") and the International Financial Reporting Interpretations Committee ("IFRIC") and there is an ongoing process of review and endorsement by the European Commission.
The presentation of the primary financial statements has been modified in order to comply with IAS 1(revised). However the revised Standard has no impact on the reported results or financial position of the Group.
The financial information has been prepared on the basis of IFRS that the Directors expect to be applicable as at 30 June 2010.
The condensed financial information for the year ended 30 June 2009 set out in this interim report does not comprise the Group's statutory accounts as defined in section 434 of the Companies Act 2006.
The statutory accounts for the year ended 30 June 2009, which were prepared under IFRS, have been delivered to the Registrar of Companies. The auditors reported on these accounts; their report was unqualified, and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.
1. Loss per share attributable to the equity shareholders of the Company
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| Basic loss per share |
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| Six months ended 31 December 2009 | Six months ended 31 December 2008 |
Year ended 30 June 2009 |
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| US$ | US$ | US$ |
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| Loss per share from continuing operations (US cents) | (0.24) | (0.17) | (0.72) |
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| Earnings per share from discontinued operations (US cents) | - | - | 0.17 |
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| Total basic loss per share (US cents) | (0.24) | (0.17) | (0.55) |
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| The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows: | |||
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| Earnings used in the calculation of total basic and diluted earnings per share |
(746,310) |
(347,561) |
(1,298,088) |
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| 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 |
(746,310) |
(347,561) |
(1,694,645) |
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| Six months ended 31 December 2009 | Six months ended 31 December 2008 |
Year ended 30 June 2009 |
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| US$ | US$ | US$ |
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| Number of shares |
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| Weighted average number of ordinary shares for the purposes of basic earnings per share | 312,918,822 | 209,755,580 | 234,475,130 |
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As at 31 December 2009, 30 June 2009 and 31 December 2008 the options in issue are not dilutive under IAS 33, Earnings per Share, because they would have the effect of decreasing the loss per share. As such there is no difference between the basic and dilutive loss per share at these dates.
| Number of shares | Six months ended 31 December 2009 | Six months ended 31 December 2008 | Year ended 30 June 2009 |
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| Weighted average number of ordinary shares for the purposes of the diluted loss per share | 319,168,822 | 216,505,580 | 241,100,472 |
2. Taxation
There was no tax charge for the interim period due to the loss incurred (2008: US$ nil). A deferred tax asset in respect of trading losses and share based payments has not been recognised due to the uncertainty over timing of future profits. The trading losses are recoverable against suitable future trading profits.
3. Share Capital
During the period to 31 December 2009, 64,095,857 shares were issued at 35p raising £22.4 million before expenses of £0.98 million.
Following the Placing, there are 329,639,480 ordinary shares of 0.25p each in issue.
4. Post Balance Sheet Events
No significant events have taken place since the balance sheet date.
5. Copies of the Half Yearly Report
A copy of this Half Yearly Report will be posted to shareholders on or around 5 April 2010 and is now available on the Company's website at www.nighthawkenergy.com.