Nighthawk Energy Regulatory News (HAWK)

Monday 29 November 2010

NIGHTHAWK ENERGY PLC

Result of Strategic Review

Future investment strategy more effectively targeted to maximise shareholder returns

Decision taken to focus on Jolly Ranch and exit all other current projects

Nighthawk, the US focused oil development and production company (AIM: HAWK and OTCQX: NHEGY), announces the results of a strategic review initiated by the Board following a number of management changes, including the appointment of Tim Heeley as Chief Executive in September 2010.

Highlights

In September, following a number of board and management changes including the appointment of a new Chief Executive, the Board initiated a strategic review with the aim of cutting costs and ensuring that the available resources are invested as effectively as possible to maximise returns. All the projects were evaluated on an expenditure versus earnings potential basis to assess what value could be delivered over a three year time frame.

Since inception, Nighthawk has invested approximately US$117 million in its oil and gas projects; however, to date only approximately one third of this has been invested in the Jolly Ranch project, its most important project. The Board believes that continuing to invest in all of the current projects is curtailing the delivery of shareholder value and that the funds available will be better utilised by focusing on Jolly Ranch.

A longer-term objective will be to identify and acquire additional assets to help internally fund the ongoing development at Jolly Ranch. Nighthawk is focused on maintaining and growing shareholder value and as such it is currently envisaged that these future projects will have near-term operational cashflow delivery and be most likely focused on low-risk conventional oil developments.

Revere

To date, approximately US$39 million has been invested by the Company in the Revere projects in Kansas and Missouri against a revenue contribution of just US$1.5 million, net to Nighthawk; this represents a revenue return on capital of approximately 4%, significantly below an acceptable level.

The purpose behind the investment in Revere was to have a project that could deliver near to medium term operational cash flow to help fund the development of Jolly Ranch. However, it is apparent that the waterflood process, the effect of which is difficult to predict, is not working as efficiently as had been hoped. The planned work programme for 2011 would have required a change in operational strategy and significant further capital investment from Nighthawk without any guarantee of future revenue growth. Furthermore, gas production has now been shut in across all Revere projects, including Xenia, due to the continuing and expected long term depressed prices for US natural gas.

The sale of Nighthawk's working interest in Revere has been considered by the Company. However, it was decided that the capital and time required to make the project a saleable proposition, plus the lack of prospective buyers in the region, would have meant a sale would not have been achievable within a reasonable timescale to meet shareholders' best interests.

Therefore the Board has decided to assign the Company's interests in the Revere projects to the operator, Running Foxes Petroleum Inc., with effect from 1 January 2011. Thereafter, Nighthawk will no longer have any future capital liability on the project. In return for the assignment, Nighthawk will receive a 5% over-riding royalty from production and 25% of any sale proceeds, within the next two years, if the operator sells any part of the property to a third party. Nighthawk has also retained an option to re-enter the assets at its own choosing for which Nighthawk would have to pay historic costs attributable from the reassignment date plus a 20% uplift.

Cisco Springs

Nighthawk has invested approximately US$25 million in the Cisco Springs project in Utah. Whilst the asset is producing both gas and oil, the gas production has been minimal for many months and the revenue from oil production is not sufficient to cover the ongoing costs on the licence.

A number of options are being actively considered regarding the Company's exit from Cisco Springs. It is currently envisaged that this could involve the sale of the whole project to a third party whose ultimate interest is access to the export infrastructure due to the continuing depressed North American natural gas prices. Any amount realised in a potential sale will be significantly below the amount invested to date and the Board intends to write down the value of the asset in the upcoming interim accounts. Whilst there can be no guarantee that a transaction will be completed, it is anticipated that Nighthawk will cease to be involved in the Cisco Springs project in the near future, at which point the Company will update the market.

Cliffs

The Company's activities at Cliffs have always been marginal to the other projects in the portfolio and it remains the only project on which drilling has not occurred. To date approximately US$2.3 million has been capitalised against the project. No further activity will be undertaken on the licences on the project and the leases will be allowed to lapse.

Jolly Ranch

Nighthawk is now able to focus capital on the lead project, Jolly Ranch, which the Board believes has the best potential to add scalable value to shareholders.

The current work programme, following a period of technical review, will include up to a dozen completions and recompletions over the coming months on the existing wells with the primary objective of better understanding the fraccing and completion process; the key to unlocking any shale resource play. A number of external consultants with experience of working on other shale oil projects have been brought in to advise on this process. Once a greater understanding of the completion techniques has been achieved, we will commence a further drilling programme of up to five wells at Jolly Ranch. We currently do not expect to commence this drilling until late Q1 2011.

As previously announced Macquarie Tristone was to continue the marketing process to attract a potential farm-in partner for a proportion of the Jolly Ranch project until the end of the year. However, the Board has decided to discontinue this process with immediate effect, so Nighthawk and Running Foxes are able to focus on the current work programme and further build up the body of knowledge on the Atoka and Cherokee shales.

In the meantime Schlumberger is concluding its reservoir simulation and production modelling of the Craig and Jolly Ranch areas of the project and will shortly pass the simulation model to GCA to undertake the first Reserves and Resources study on the project. Although at this stage of development the actual reserve figure is expected to be low given the early stage of development and the relatively small area under consideration, it will be the first step in helping define a firm value for reserves and contingent resources on the Jolly Ranch project.

Nighthawk currently anticipates that both pieces of work will be concluded in Q1 2011 and looks forward to updating the market with the conclusions from both the Schlumberger and GCA reports at that time.

Tim Heeley, Chief Executive Office of Nighthawk, said:

"This thorough review of strategy assessed each project on a capital expenditure versus medium-term value potential. It has resulted in the decision to exit a number of projects that have been soaking up investment and management attention without the prospect of delivering acceptable returns.

"We are now able to focus on Jolly Ranch, our lead project, which we believe has tremendous potential. A number of completions are planned over the next four months on the existing wells to be followed by the drilling of up to a further five wells later in 2011 once we have a better understanding of the completion and stimulation methods. The increasing competitor activity around our acreage continues to reinforce the belief that Jolly Ranch holds considerable upside."

Enquiries: