8 Dec 2014 07:00
8 December 2014
NIGHTHAWK ENERGY PLC
("Nighthawk" or "the Company")
Operational Strategy and Company Presentation
Nighthawk, the US focused oil development and production company (AIM: HAWK and OTCQX: NHEGY), with its 100% controlled and operated Smoky Hill and Jolly Ranch projects in the Denver-Julesburg Basin, Colorado, announces details of its internal review of its past operating success, its future drilling inventory, and how the economics of its drilling program impact its operational strategy.
Highlights of the Company's Internal Review
· Thorough internal review and analysis of existing wells, geoscience data and economic modelling defines balanced operational strategy encompassing development and exploration opportunities with potential to deliver significant NPV growth
· From the internal review, Nighthawk established an economic drilling inventory of multizone opportunities across more than 81 potential new well locations and 16 uphole completions. This inventory count has the potential to expand as drilling results are known. Also noted from the review:
o High quality, low cost inventory capable of achieving a 25% breakeven rate of return at below current market crude oil prices (West Texas Intermediate (WTI) benchmark)
o Scalable and repeatable new drill and recompletion opportunities with potential to grow production materially in 2015
o Review confirms Nighthawk's past drilling success at the Arikaree Creek field has already delivered a five-fold return on invested capital, thus exceeding the Company's internal return hurdle for its invested capital
· Ryder Scott reserve report estimating 3P reserves of 3.7 MMBOE net
· Company estimates 3P Reserves of 11.0 MMBOE net to the Company, which includes 3.0 MMBOE to 3.5 MMBOE net in the Proved Reserve category, prepared consistent with SPE standards and methodologies used by Ryder Scott
· Nighthawk's Chairman and Chief Financial Officer will be presenting to institutional investors, analysts and brokers during the week commencing December 8th, 2014 in London
· An updated Company Presentation outlining the results of this internal review will be made available on the Company's website today, together with an audio presentation by Rick McCullough, Chairman of Nighthawk
Internal Operational Review
The in-depth review, that was completed over the past 30 days by Nighthawk's operational team in Denver, USA, included a thorough analysis of existing well results, geoscience data and economic modelling. Based on this review, the Company is adopting a go-forward operational strategy with a balanced approach of pursuing both developmental projects, such as targeting significant new drill and recompletions, as well as continuing to pursue its exploration activities. This approach is expected to result in more predictable growth associated with its production and cash flows.
The Company's expanded inventory of multi-zone, repeatable and scalable opportunities includes more than 81 potential future drilling locations and 16 uphole recompletions across Mississippian and Pennsylvanian age formations in the Arikaree Creek field as well as the Snow King and Salen areas with the potential to yield significant NPV growth. As more new wells are drilled, Nighthawk expects to continue to add to its uphole recompletion opportunities because of the multiple oil pay zones associated with its wells.
The in-depth review reinforces the Company's view that its projects have an attractive, low cost structure, resultant low breakeven oil price threshold and high margin when compared to other US on-shore operators. Go forward drill and completion well costs are estimated to remain around US$2 million per well, which allows a rapid pre-well payback estimated at 6 to 12 months and estimated IRRs in most cases of at least 100 per cent., even in a $70 per barrel WTI oil market. This, combined with the Company's commodity price hedging program, leads Nighthawk to believe that it is well placed to continue to generate production, cash flow and NPV growth, even in the current crude oil price environment.
The review also confirmed that Nighthawk's past drilling success in its Arikaree Creek field has already resulted in a five-fold return on invested capital and the Company believes that its new well and recompletion inventory offers similar potential.
Reserves & Potential
The Company commissioned a reserves report by Ryder Scott as of October 1, 2014, the results of which are summarised below:
Category | MBOE (Net) |
PDP | 1,197 |
Proved Shut-In | 85 |
TOTAL PROVED | 1,282 |
Probable Producing | 553 |
Probable Undeveloped | 578 |
TOTAL PROBABLE | 1,131 |
Possible Producing | 172 |
Possible Undeveloped | 1,088 |
TOTAL POSSIBLE | 1,260 |
TOTAL RESERVES | 3,673 |
(1) Ryder Scott report prepared to SPE standards
(2) Assumed NYMEX-WTI oil price of $82.42/bbl held constant.
Nighthawk's internal analysis of its petroleum reserves, based upon applying the same reservoir engineering methodologies as Ryder Scott and using SPE standards, suggests significant upside potential over and above the 3P Reserves estimated by Ryder Scott. The Ryder Scott report was prepared as of October 1st, 2014 and does not include continued drilling successes nor the results of this extensive internal review by the Company. Nighthawk has reviewed its analysis with Ryder Scott who confirmed its consistent methodology. Nighthawk's analysis suggests reserves are enhanced by recent recompletion successes in the Pennsylvanian age formation in the Arikaree Creek field, continued stable production from existing producing Spergen wells and recent well successes at Arikaree Creek further de-risking the structure. These reserves enhancements lead Nighthawk to estimate reserves in the Proved Reserve category of 3.0 MMBOE to 3.5 MMBOE net. Furthermore, after taking account of the broader new drill and recompletion inventory, Nighthawk estimates 2P Reserves of 4.3 MMBOE to 4.8 MMBOE net and 3P Reserves of 11.0 MMBOE net.
Company Presentation
Nighthawk's Chairman and Chief Financial Officer will be meeting with institutional investors, analysts and brokers in London during the week commencing December 8th, 2014.
An updated Company Presentation will be made available on the Company's website today at http://www.nighthawkenergy.com/investors/presentations/ together with an audio interview with Rick McCullough, Chairman of Nighthawk.
Rick McCullough, Chairman of Nighthawk, commented:
"I have been working with our technical and financial teams, as well as our advisors, to assess our past performance and how best to illustrate how our successes, our ever-increasing understanding of our drilling inventory, our related estimates of ultimate recoveries of oil and economics to strengthen our expectations of the potentially repeatable opportunities to drive further value creation. I believe the results of this review, which was prepared following generally accepted techniques used by US Exploration and Development companies, will hopefully show what could be a very bright future ahead for the Company. I look forward to sharing these results with investors, equity analysts and potential investors in the near future."
Chuck Wilson, Chief Operating Officer of Nighthawk, who has over 33 years of experience in the oil and gas industry and meets the criteria of qualified persons under the AIM guidance note for mining and oil and gas companies, has reviewed and approved the technical information contained in this announcement.
- Ends-
Definitions and Glossary
2P Reserves | Proved and Probable Reserves |
3P Reserves | Proved, Probable and Possible Reserves |
bopd | Barrels of oil per day |
IRR | Internal rate of return |
MBOE | thousand barrels of oil equivalent |
MMBOE | million barrels of oil equivalent |
Net revenue interest (NRI) | Nighthawk's share of oil, gas, and associated hydrocarbons produced, saved, and marketed, after satisfaction of all royalties, overriding royalties, or other similar burdens on or measured by production of oil, gas, and associated hydrocarbons. Nighthawk has an average NRI of approximately 81.5% in the gross oil production. |
NPV | Net present value |
PDP | Proved Developed Producing reserves are expected to be recovered from completion intervals (oil- and gas-producing sands or zones) that are open and producing at the time of the estimate |
Possible Reserves | Possible reserves are reserves that have a 10% chance of being greater than estimated and a 90% chance of being smaller |
Probable Reserves | Probable reserves are reserves that have a 50% chance of being higher than estimated and a 50% chance of being lower |
Proved Reserves | Proved reserves are reserves that have a 90% chance of being higher than estimated and a 10% chance of being lower |
Proved Shut-In | Proved Reserves that were not producing at the time of the reserves determination |
SPE | The Society of Petroleum Engineers |
Enquiries:
Nighthawk Energy plc | |
Rick McCullough, Chairman | +1 303 407 9600 |
Richard Swindells, Chief Financial Officer | +44 (0) 20 3582 1350 |
Westhouse Securities Limited | +44 (0) 20 7601 6100 |
Alastair Stratton | |
Robert Finlay | |
Canaccord Genuity | +44 (0) 20 7523 8000 |
Neil Elliot | |
Tim Redfern | |
Henry Fitzgerald-O'Connor | |
FTI Consulting | +44 (0) 20 3727 1000 |
Ben Brewerton | ben.brewerton@fticonsulting.com |
Ed Westropp | edward.westropp@fticonsulting.com |