Operations Update, Hedging & Mesquite Development
26 November 2018
Nostra Terra Oil and Gas Company plc
("Nostra Terra" or the "Company")
Operations Update, Hedging & Mesquite Development
Nostra Terra (AIM:NTOG), the oil and gas exploration and production company with a portfolio of assets in the USA and Egypt, is pleased to announce an operations update, a report on the Company's hedging position and progress with the Mesquite Prospect ("Mesquite" or the "Prospect") Field Development Plan.
Highlights
· Operations Update
o US oil production so far in H2 2018 of 109 barrels of oil per day ("bopd") net to Nostra Terra (194 bopd gross) versus 101 bopd net in H1 2018 (180 bopd gross).
o Pine Mills facilities upgrades completed to handle increased production
o Twin Well & G6 combined production continues to surpass management's expectations at 53 bopd gross
o Arbitration process continues in relation to East Ghazalat (Egypt)
· Hedging
o 1,500 barrels a month hedged at US$62.75 per barrel to 31 December 2018
o 1,500 barrels a month hedged at US$60 per barrel to 31 December 2019
· Mesquite Field Development Plan
o Initial results are encouraging
o Trey Resources, Inc ("Trey") to deliver volumetrics report by mid-December
o Work to continue on the Field Development Plan immediately following completion of the report
Operations update
So far in H2 2018, Nostra Terra's oil production across its US assets has been 109 bopd net of all royalties (194 bopd gross). This is a 9% increase on average net oil production in H1 2018 of 101 bopd (180 bopd gross). The Company remains on course to meet or exceed its H1 2018 production performance during H2 2018.
Since repositioning the business in summer 2016, Nostra Terra's focus has been to grow the Company through building a solid base of conventional oil production, which is profitable at US$30 per barrel. This approach has benefited the Company greatly, allowing it to withstand any short to medium term volatility in oil markets and maintain its operational progress.
Pine Mills (Texas)
At Pine Mills, Nostra Terra's 100% owned and operated oil field, the Company successfully completed two re-activations of previously shut-in wells in recent months, which increased production. Following this, work was undertaken to upgrade storage facilities to handle greater volumes of oil. This work has now been completed and production has begun to increase beyond the recent average rates.
Permian Basin (Texas)
At Nostra Terra's existing, producing assets in the Permian Basin, combined continuous production at the Twin and G6 wells continues to surpass management's expectations. Since completing the G6, continuous combined gross oil production has averaged 53 bopd. Nostra Terra's Board is encouraged by the modest decline rate exhibited by these two wells, which is typical of conventional reservoirs found in these leases. Nostra Terra expects the combined payback period for the two wells will be faster than originally anticipated. Further wells in this area are being planned.
East Ghazalat (Egypt)
As previously announced, Nostra Terra has entered into an international arbitration process with North Petroleum, concerning disagreements over the management of the East Ghazalat Joint Venture. This process continues and Nostra Terra will provide further updates as the arbitration process progresses.
Hedging & financial position
On 26 September 2017, Nostra Terra announced a hedging facility with BP Energy Company. Given the secure cash flows Nostra Terra has generated over the last two years, the hedging facility provides Nostra Terra with a high degree of stability to grow its business.
Nostra Terra has been able to re-invest free cash flow from operations into its producing US assets. When combined with the working capital provided by the Company's Senior Lending Facility with Washington Federal Bank (announced 8 January 2018), Nostra Terra's fundamental financial position is secure. The next re-determination of the Washington Federal Senior Lending Facility is scheduled for early 2019.
Current hedging arrangements that Nostra Terra has in place are as follows:
· 1,500 barrels a month hedged at US$62.75 per barrel to 31 December 2018
· 1,500 barrels a month hedged at US$60 per barrel to 31 December 2019
The Board has adopted this hedging policy to ensure Nostra Terra's core operational costs and field operational expenses are covered, while preserving sufficient flexibility to benefit from the significant production increases the Company anticipates delivering in 2019. The Company expects to grow oil production through development of the Mesquite Prospect and further drilling across its existing assets in the Permian Basin.
Mesquite Update
Nostra Terra's Board has received initial results from Trey's volumetric work on the Mesquite Prospect. Trey is on target to deliver the report, as part of the Field Development Plan by mid-December, which will include a complete volumetric analysis and selection of the optimal targets for horizontal drilling within the Prospect area.
Nostra Terra's Board is encouraged by Trey's initial findings. Consistent with comparable oil fields in other producing areas of the Permian Basin, Mesquite is a high confidence prospect, supported by numerous commercial vertical wells surrounding the Prospect. As such, Nostra Terra's Board believes that once the Field Development Plan is complete, the Company will have a number of attractive options open to it to develop Mesquite. These options are likely to include a potential farm-in, partnering with an industry specialist or self-financing any drilling.
Advances in horizontal drilling and well completion technologies over recent years have been pivotal in unlocking production growth across the Permian Basin. This has triggered a significant inflow of investment into the region, with 20% of global oil services and equipment expenditure currently being spent in the Permian Basin alone. Total investment across the Permian Basin reached US$8 billion in 2016 and is expected to rise to US$40 billion by 2021.
Reflecting the competitive interest in regional horizontal oil plays, Nostra Terra has already received four unsolicited expressions of interest from potential industry partners wherein Nostra Terra would be carried by a partner in initial drilling costs. Although it is premature to advance any such discussions, Nostra Terra's Board believes this is a promising indicator for the future development of Mesquite.
Before Nostra Terra engages in further discussion with any potential partner, the Board believes that it is important that Trey completes the Field Development Plan as the work can create significant value. Once Trey has submitted the volumetrics report, it will immediately start work on a second report, which will include engineered economics for Mesquite, and which will finalise the Field Development Plan. Nostra Terra will provide an updated timeline once the volumetrics report is released.
Matt Lofgran, Chief Executive Officer of Nostra Terra, commented:
"The Permian Basin is the most active oil province in the world. Our strategy over recent years has been to establish a footprint here, with stable oil production. We have achieved this and have built a portfolio of low risk, conventional vertical drilling targets.
As I've said repeatedly in recent months, Nostra Terra is now well positioned for its next big step forward. The Company is well-hedged against the recent drop in oil prices and its fundamental financial position remains strong. Operationally we continue to make progress, but we are most excited by the progress made at Mesquite. We look forward to providing a more detailed update on this in the coming weeks."
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.
For further information, visit www.ntog.co.uk or contact:
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Nostra Terra Oil and Gas Company plc Matt Lofgran, CEO
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Tel: |
+1 480 993 8933 |
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Strand Hanson Limited (Nominated & Financial Adviser and Joint Broker) Rory Murphy / Ritchie Balmer / Jack Botros
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Tel: |
+44 (0) 20 7409 3494 |
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Smaller Company Capital Limited (Joint Broker) Rupert Williams / Jeremy Woodgate |
Tel: |
+44 (0) 20 3651 2910 |
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About the Mesquite Prospect
The Mesquite Prospect is in West Texas and covers 1,384 net acres in the prolific Permian Basin. The Mesquite Prospect is proven to produce from multiple, stacked-pay reservoirs. Nostra Terra has identified 8 targets to drill horizontal wells across the Mesquite leases.
The target formations at the Mesquite Prospect are "tight", meaning the oil-bearing rock formations are of low permeability. As such, the target formations have characteristics that make them ideal targets for horizontal drilling and have delivered substantial oil production in other areas of the Permian Basin. Comparable regional horizontal drilling has delivered initial oil production rates of 200-300bopd.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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