14 Mar 2013 07:00
14th March 2013
NIGHTHAWK ENERGY PLC
("Nighthawk" or "the Company")
Smoky Hill Development Plans and Reserve Report
Nighthawk, the US focused shale oil development and production company (AIM: HAWK and OTCQX: NHEGY), announces development plans and an independent reserve report for its 100% controlled and operated Smoky Hill project in the Denver-Julesburg Basin, Colorado.
Highlights
·; Steamboat Hansen 8-10 discovery to be further developed with two new wells scheduled to be drilled early in the second quarter 2013
·; Production data for the Steamboat Hansen 8-10 well over the period from late November 2012 to 28 February 2013 shows:
Ø Cumulative gross production has exceeded 22,000 barrels ("bbls") of oil (average rate of 239 bbls/day)
Ø Gross average daily production rate has increased to over 250 bbls/day
Ø The payback period on drilling and equipment cost was under 3 months
·; Independent Competent Person's Report ("CPR") on Steamboat Hansen discovery identifies gross Stock Tank barrels of Oil initially-in-Place ("STOIIP") of up to 4.89 million bbls and gross recoverable reserves of up to 755,000 bbls
·; Based on analysis of the immediately surrounding structures, Nighthawk estimates potential for STOIIP to increase to 14.5 million bbls
·; Q2 drilling program anticipated to be fully funded from existing resources and new short-term borrowing facility
Smoky Hill Development
The Steamboat Hansen 8-10 well, drilled by Nighthawk in October 2012 discovered a Mississippian age oil reservoir at a depth of just over 8,000 feet. This was the first well drilled in this area of Colorado for over 25 years and is some 50 miles from the nearest Mississippian discovery. The discovery opens up significant new oil potential in the region. The well was successfully completed and brought into production in late November 2012.
In the period to 28 February 2013, the well has produced over 22,000 bbls of oil (average 239 bbls/day), with almost no water, minimal downtime and an increasing daily production rate, generating a gross sales value in excess of US$1.75 million, in which Nighthawk has an 80% net revenue interest. The payback period on the well's drilling and equipment cost was under three months.
Following the success of the Steamboat Hanson 8-10 well Nighthawk commissioned the Denver office of MHA Petroleum Consultants LLC ("MHA") to produce a CPR including an independent evaluation of the reserves within the Steamboat Hansen discovery and the immediate area. The CPR has been prepared in accordance with the AIM Note for Mining and Oil & Gas Companies June 2009 and subject to the carve out of certain commercially confidential information, a summary of the report will shortly be available on the Company's website.
The Company now plans to commence the next development stage with the drilling of two further wells on the Smoky Hill project. Negotiations are underway to contract for a drilling rig for this next phase and, subject to rig availability and final permitting, it is anticipated that drilling could commence as early as April 2013. This development phase is primarily targeted at increasing production as quickly as possible to generate free cash for further investment in the second half of 2013.
It is anticipated that the two well drilling program will be funded from existing resources and new short-term borrowing facilities, as detailed below.
The Company believes that there is significant upside opportunity beyond the proposed two well program and has taken steps in recent weeks to secure lease positions in the area and commence the permitting process for further new wells.
Steamboat Hansen Reserves - Competent Person Report (CPR)
As set out above MHA was commissioned to prepare an independent evaluation of the reserves within the Steamboat Hansen discovery and the immediate area around the discovery. The following tables are extracted from the CPR and summarise the oil reserves and reserve valuation contained in the report.
Table 1: Steamboat Oil Reserve Summary (effective 1/1/2013)
Gross Nighthawk | Net to Nighthawk | |||||
1P (Mstb) | 2P (Mstb) | 3P (Mstb) | 1P (Mstb) | 2P (Mstb) | 3P (Mstb) | |
STOIIP | 1,050 | 2,270 | 4,890 | n/a | n/a | n/a |
EUR | 146 | 331 | 755 | n/a | n/a | n/a |
Reserve | 135 | 317 | 733 | 108 | 254 | 586 |
Table 2: Steamboat Reserve Valuation Summary (effective 1/1/2013)
Reserve Status | 1P Net BFIT Cash Flow Disc. @ 10% (MM $) | 2P Net BFIT Cash Flow Disc. @ 10% (MM $) | 3P Net BFIT Cash Flow Disc. @ 10% (MM $) |
Total | 7.2 | 14.0 | 27.2 |
Note : The net reserves in Table 1 and the valuations in Table 2 are based upon a 100% working interest and an 80% net revenue interest
Funding
Nighthawk has secured an offer of a short-term borrowing facility of US$5 million (the "Loan Facility") which can be drawn down prior to 31 May 2013 to fund drilling, work-over and leasing programs. Current production levels are generating sufficient cash to cover operating costs and overheads and the Board believes that existing cash reserves and the borrowing facility are sufficient to fund the Company's immediate development and leasing plans.
The Loan Facility will be provided by a party connected to the Company's largest shareholder, Johan Claesson. The principal terms of the Loan Facility offer are:
·; 15% annual coupon payable quarterly
·; 10% profit-share after lease operating expenses in Nighthawk's net revenue interest in up to four new producing wells on the Smoky Hill project excluding the existing Steamboat Hansen 8-10 well
·; Repayable in full no later than 31 May 2014
·; Secured on a single lease held by production
Entering into the Loan Facility will be a related party transaction under the AIM Rules. Accordingly, the Nighthawk Board considers, having consulted with Westhouse Securities Limited the Company's Nominated Adviser, that the terms of the Loan Facility are fair and reasonable in so far as the Company's shareholders are concerned.
Stephen Gutteridge, Chairman of Nighthawk, commented:
"The CPR of MHA Petroleum Consultants is the first step in confirming the significant potential which we identified in the unexplored Smoky Hill acreage, and independently supports the case for further drilling in the area. Whilst we will continue our work to prove up the commerciality of the Cherokee shale opportunity, our short-term focus is on driving up production from the solid base of the Steamboat Hansen 8-10 well by drilling two more production wells.
"The CPR was able to draw on data from just three wells and our existing 3D seismic that covers less than 10% of the Smoky Hill area. Given the identified potential in this small area, we are particularly interested in the prospects within the much larger unexplored Smoky Hill acreage and will be drawing up plans for exploration of this area later this year.
"With the US$5 million additional funding available, we will be able to move quickly to commence drilling, extend the current work-over program to add incremental production, add to our existing seismic bank and invest in our land position."
Chuck Wilson, Chief Operating Officer of Nighthawk, who has over 32 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-
Enquiries:
Nighthawk Energy plc Stephen Gutteridge, Chairman Richard Swindells, Chief Financial Officer
|
020 3582 1350
| |
Westhouse Securities Limited Richard Baty | 020 7601 6100 richard.baty@westhousesecurities.com | |
Investec Bank plc Neil Elliot Chris Sim
| 020 7597 4000 neil.elliot@investec.co.uk chris.sim@investec.co.uk
| |
FTI Consulting Ben Brewerton Ed Westropp | 020 7831 3113 ben.brewerton@fticonsulting.com edward.westropp@fticonsulting.com | |
Note:A summary of the CPR will be made available shortly at www.nighthawkenergy.com There are some aspects of the full CPR that are commercially sensitive and have been edited for publication on the website.
Glossary of technical terms
The following are the main terms and abbreviations used in this announcement:
1P - Proved Reserves | Proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations. Proved reserves can be categorized as development or undeveloped. If deterministic methods are used, the term reasonable certainty is intended to express a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate |
2P - Probable | The Sum of Proved Reserves plus Probable Reserves |
3P - Possible | The Sum of Proved Reserves plus Probable Reserves plus Possible Reserves |
Barrel or bbls | an oilfield measurement barrel is 42 US gallons or 5.615 ft3 |
BFIT | Before Federal Income Tax |
EUR | Estimated Ultimate Recovery |
MM $ | Million of US dollars |
Mstb | Thousand of stock tank barrels |
Possible reserves | Possible reserves are those unproved reserves which analysis of geological and engineering data suggests are less likely to be recoverable than probable reserves. In this context, when probabilistic methods are used, there should be at least a 10% probability that the quantities actually recovered will equal or exceed the sum of estimated proved, plus probable, plus possible reserves. In general, possible reserves may include (1) reserves which, based on geological interpretations, could possibly exist beyond areas classified as probable, (2) reserves in formations that appear to be petroleum bearing, based on log and core analysis but may not be productive at commercial rates, (3) incremental reserves attributed to infill drilling that are subject to technical uncertainty, (4) reserves attributed to improved recovery methods when (a) a project or pilot is planned, but not in operation and (b) rock, fluid, and reservoir characteristics are such that a reasonable doubt exists that the project will be commercial, and (5) reserves in an area of the formation that appears to be separated from the proved area by faulting and geological interpretation indicates the subject area is structurally lower than the proved area |
Probable reserves | Probable reserves are those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable reserves. In general, probable reserves may include (1) reserves anticipated to be proved by normal step-out drilling where sub-surface control is inadequate to classify these reserves as proved, (2) reserves in formations that appear to be productive, based on well log characteristics, but lack core data or definitive tests and which are not analogous to producing or proved reservoirs in the area, (3) incremental reserves attributable to infill drilling that could have been classified as proved if closer statutory spacing had been approved at the time of the estimate, (4) reserves attributable to improved recovery methods that have been established by repeated commercially successful applications when (a) a project or pilot is planned, but not in operation and (b) rock, fluid, and reservoir characteristics appear favorable for commercial application, (5) reserves in an area of the formation that appears to be separated from the proved area by faulting and the geologic interpretation indicates the subject area is structurally higher than the proved area, (6) reserves attributable to a future workover, treatment, retreatment, change of equipment, or other mechanical procedures, where such procedure has not been proved successful in wells which exhibit similar behaviour in analogous reservoirs, and (7) incremental reserves in proved reservoirs where an alternative interpretation of performance or volumetric data indicates more reserves than can be classified as proved |
Recoverable reserves | the portion of reserves that can be recovered by currently available technologies |
Reserves | a calculation of the amount of hydrocarbon reserves that are in the formation |
Reservoir | an independent hydrocarbon holding rock |
STOIIP | Stock tank oil originally in place |