10 Aug 2010 07:00
Nighthawk Energy plc
("Nighthawk" or the "Company")
Independent Xenia Project Gas Reserve Report
Green Valley Project Acquisition
Nighthawk, the US focused hydrocarbon development and production company (AIM: HAWK and OTCQX: NHEGY), is pleased to announce the results of an independent gas reserve evaluation of the Xenia project ("Xenia"), situated in Bourbon County, Kansas, together with details of the Green Valley project acquisition.
Highlights
·; Oilfield Production Consultants Limited ("OPC") gas reserve evaluation calculates gross 3P reserves over 6,000 acres at 15.26 billion cubic feet (4.88 billion cubic feet net to Nighthawk)
·; Xenia acreage increased to in excess of 15,000 acres subsequent to evaluation
·; Xenia average daily production 600,000 cubic feet of gas (gross) since October 2009
·; Eleven successful new wells drilled and currently being hooked up to pipeline
·; Acquisition of Green Valley project adds further 3,500 acres to Xenia project in addition to the 15,000 acres currently held
Xenia Project Overview
Nighthawk holds a 50% interest in Xenia, located near the border of Kansas and Missouri, with the operator, Running Foxes Petroleum Inc. ("Running Foxes"), holding the remaining 50% interest. Xenia forms part of the larger Revere project. Though an ongoing land acquisition programme, the acreage at Xenia has expanded from the original 3,700 acres to approximately 15,000 acres.
The Xenia leases are located in the prolific shallow Cherokee Basin of southeastern Kansas. The gas production is coal bed methane ("CBM") derived from the Summit, Excello and Riverton coal formations in the carboniferous Pennsylvanian at depths of less than 1,000 feet.
Currently there are eleven producing wells and an additional eleven recently drilled wells which are undergoing completion and hook-up to the Xenia pipeline. The cumulative gas production since the start of operations in late October 2009 is approximately 150 MMscf and average daily production is 600 Mscf of gas. Following the addition of the eleven new wells, gas production is expected to increase by a further 600 Mscf per day.
In November 2009, the 26 kilometre, 5 MMscf capacity Xenia gas pipeline was completed and commissioned. This pipeline, which is 50% owned by Nighthawk, is flowing Xenia gas into the Bourbon County pipeline, which is also 50% owned by Nighthawk, and sold into the Southern Star (a division of General Electric) interstate transport line.
Oilfield Production Consultants Reserve Evaluation
OPC, an independent international consultancy, was commissioned by Nighthawk, to undertake an evaluation of the gas reserves at Xenia, as defined under the Society of Petroleum Engineers Petroleum Resources Management System.
The scope of work superseded the original scope of work provided to OPC which was to prepare a report on gas in place only. Due to better than expected production from the Summit, Excello and Riverton zones, further drilling success and the addition of new lease areas it was decided to proceed with a full reserve report over the 6,000 acres held at that time. The leasehold area at Xenia is currently approximately 15,000 acres, excluding the Green Valley project acreage described below.
The OPC evaluation was performed based on the data from the eleven producing wells and three wells awaiting completion and hook-up. During the OPC evaluation a further 9,000 acres have been added to the land base and a further eight wells await completion and hook-up. OPC state in their Executive Summary that the additional acreage and wells will very likely increase the 2P and 3P reserves for Xenia once this new data is incorporated in future reserve updates.
The OPC current reserve figures calculated for Xenia over the 6,000 acre area, with the net reserves to the partnership taking account of a 20% royalty and severance tax and assuming 20% shrinkage due to gas handling, transportation and compression, are as follows:
| Reserve Category | Gross Reserves Mscf | Net Reserves Mscf to the partnership | Net to Nighthawk Mscf
|
| Total Proved Developed | 696,242 | 445,595 | 222,797 |
| Total Proved Non-Producing | 287,256 | 183,844 | 91,922 |
| Proved Undeveloped | 555,715 | 355,657 | 177,829 |
| 1P Reserves | 1,539,213 | 985,096 | 492,548 |
| Probable behind Pipe | 1,428,294 | 914,108 | 457,054 |
| Probable offset | 1,445,927 | 925,393 | 462,697 |
| 2P Reserves | 4,413,433 | 2,824,597 | 1,412,229 |
| Possible offset | 10,844,453 | 6,940,450 | 3,470,225 |
| 3P Reserves | 15,257,886 | 9,765,047 | 4,882,524 |
The key findings of the OPC evaluation over 6,000 acres at Xenia are as follow:
·; Proved developed gas reserves were assigned for the current eleven producing wells with production from the Summit, Excello and Riverton formations using decline curve analysis for each well
·; Proved non-producing reserves were assigned for three wells awaiting completion (for which data was provided) using individual decline curves
·; Proved undeveloped reserves were assigned to production from new wells directly adjacent to the existing production wells. The proved reserves for each of these new wells (with a spacing of 80 acres) based on the average CBM parameters from the existing production wells was 111 Mscf
·; Probable reserves were assigned for other zones in the existing wells which were not completed, but are known to produce gas in the Cherokee Basin. Using CBM parameters from existing producing wells and from the Kansas Geological Survey database, it was estimated that for each well the probable reserves in these other gas bearing zones were 127.9 Mscf
·; Possible reserves were assigned to the remaining lease acreage within the 6,000 acres, approximately three miles from existing production wells. The estimated reserves per well is 240.8 Mscf
·; There is also an additional 3.16 Bscf gross of contingent resources for acreage beyond the area assessed for possible reserves. Once more wells are drilled in the vicinity of this acreage the contingent resources can be converted to possible, probable and eventually proven reserves
·; Currently, the majority of the reserves are in the probable or possible category. As additional wells are drilled and placed on production, the reserves at Xenia will move from probable and possible reserves to proved reserves
The OPC evaluation compares favourably with a previous reserve evaluation, undertaken in early 2010 on behalf of Running Foxes, conducted by Benavides Petroleum Engineering Inc., a Denver based consultancy which calculated the cumulative 3P reserves at Xenia over 6,000 acres to be 14.56 Bscf.
In addition to the OPC gas reserve report, in November 2009, OPC conducted a review of STOOIP at Xenia over approximately 3,700 acres held at that time. The P50 (most likely) calculation was reported to be 6.85 MMbbl. The P10 (low case) and P90 (high case) figures were 1.49 MMbbl and 23.7 MMbbl gross respectively. As development since that time has continued, and further land acquisition has increased to approximately 15,000 acres, the board expects this figure to increase significantly following further evaluation of the acreage.
Green Valley Acreage Acquisition
Nighthawk and Running Foxes have purchased 3,250 acres in Bourbon County, known as the Green Valley project. This acreage will now form part of the Xenia project.
The new project area has two shut in wells in place drilled by the previous operator in 2008. During drilling the wells flowed in excess of 100 Mcf of gas per day, however due to the lack of a pipeline the wells could not be monetised.
The acreage is adjacent to the recently commissioned Xenia pipeline and Running Foxes plan to complete the well closest to the pipeline within the next 30 days and place on production.
David Bramhill, Managing Director of Nighthawk, commented:
"The results and cash flow from Xenia are contributing significantly to the overall economics and development of the combined Revere project. OPC has completed an excellent report, confirming and increasing the figures provided by the initial review undertaken by Running Foxes.
"An update on the remainder of the Revere project will be issued in the near future. Revere, although regarded as secondary to Jolly Ranch, our cornerstone project, is proving to be a valuable part of Nighthawk's portfolio."
Tim Heeley B.Eng (Hons) a member of the Society of Petroleum Engineers, Fellow of the Geological Society of London and a Chartered Energy Engineer, who is Commercial Director of Nighthawk and has over 14 years of experience in the hydrocarbons industry, has approved the technical information contained in this announcement.
For further information please contact:
| Nighthawk Energy plc David Bramhill, Managing Director Tim Heeley, Commercial Director |
07787 160682 07956 525433 020 7887 1453 |
|
|
|
| Westhouse Securities Limited Tim Feather Matthew Johnson | 020 7601 6100 tim.feather@westhousesecurities.com matthew.johnson@westhousesecurities.com |
|
|
|
| Matrix Corporate Capital LLP Louis Castro James Pope | 020 3206 7000 louis.castro@matrixgroup.co.uk james.pope@matrixgroup.co.uk |
|
|
|
| Bishopsgate Communications Limited Nick Rome | 020 7562 3395 nick@bishopsgatecommunications.com |
|
|
|
| Financial Dynamics Ben Brewerton Ed Westropp
| 020 7831 3113 ben.brewerton@fd.com edward.westropp@fd.com |
Glossary
| "1P Reserves" or "P90" | Proven reserves, indicates at least a 90% probability that the quantity of oil in place will equal or exceed the estimate |
| "2P Reserves" or "P50" | Probable reserves, indicates at least a 50% probability that the quantity of oil in place will equal or exceed the estimate |
| "3P Reserves" or "P10" | Possible reserves, indicates at least a 10% probability that the quantity of oil in place will equal or exceed the estimate |
| "Bscf" | billions of standard cubic feet |
| "MMbbl" | millions of barrels |
| "MMscf" | millions of standard cubic feet |
| "Mscf" | thousands of standard cubic feet |
| "STOOIP" | Stock Tank Oil Originally In Place |