By Stewart Dalby
We have been tracking Nighthawk Energy for some years now, particularly in the last two half years as head of the erstwhile broken Nighthawk, Stephen Gutteridge and his team, put the pieces back together and revived the AIM- listed company’s fortunes.
When this team took over, effectively late in 2012, the AIM company was producing a measly 60 bopd from its massive acreage in the Jules Basin, Colorado. By the third quarter last year when Stephen decided to move on to pastures new, Nighthawk’s output was just under 2000 bopd from its 100 per cent owned Smoky Hill and Jolly Ranch projects on the Colorado asset.
The management achieved this turnaround, not by trying to tap the shale gas and oil potential through unconventional drilling in the Cherokee and Marmaton horizons on Jolly Ranch, which were thought to be world class and possibly company-making but was clearly difficult to exploit.
Instead it drilled vertical, conventional holes. The success of this strategy was not fully anticipated at the time. The first vertical well on the Arikakee field was in November 2012 but a dozen or so wells later has seen the company reach the 2000 bopd figure.
The share price, having once been 104p had fallen to just over 2p when Stephen and Co took over. At one point last year the shares were over 14p.
Now, a new chairman in the form of Rick McCullough, has picked up the baton and the company has adopted a fresh focus of capturing ‘behind the pipe’ production and reserves from completed wells and new drills and this has been driving substantial new production. Average gross oil production from all wells in the calendar month of October 2014 was 1,886 barrels of oil per day (bopd) and in November 2014 was 2,500 to 2,600 bopd.
Behind the pipe opportunities, productions, refers to potentially producible zones that have been penetrated by a well bore but are separated from the well bore by casing (pipe) and cement and hence cannot be produced without recompleting the well in such behind pipe zones. Once completed, they can be very productive.
The Snowbird 16-15 well, for example was completed in a Pennsylvanian age formation last November and produced at an average rate of production in excess of 500 bopd. The Salen 14-35 well was completed at a Pennsylvanian age formation and averaged 150 bopd during its first 30 days of production.
At this point the company had a bit of a blip. Severe cold weather caused mechanical failures on the surface equipment and facilities and made for challenging logistics in trying to move the completion rigs between new wells, behind the pipe opportunities and maintenance projects,. As a result, Nighthawk temporarily delayed it’s behind the pipe programme and focused on meeting its new drill commitments to retain important acreage.
Nighthawk finished its drilling obligations with the drilling contractor on January 21 after drilling three additional wells that started in December. The three wells, Keystone 3-7 ,Snow King 9-32 and the Mary Jane 8-5 are conventional vertical wells in the Mississippi Spergen and are located in what has been named the Broken Spear field. The rig was then released and stacked due to falling and unstable oil prices.
Because of the temporary production loss in wells offline, delays in the behind pipe programme and normal declines in historic production, Nighthawk averaged 2,160 bopd gross (1771 bopd net) in the month of December 2014 and for the month of January 2015 the averages were 2052 bopd gross (1,682 bopd net). The new wells, which should be online in February, should restore production levels to the 2,500 bopd (2050 bopd net) range.
Going forward Nighthawk has recently reconvened its behind pipe programme with the intention of adding additional production from up holes identified during drilling and evaluated from open hole logs as hydrocarbon bearing. These plans should stabilise and grow output in the first half of 2015. The company anticipates completing 25 behind pipe projects in 2015.
For the second part of the year, Nighthawk plans to return to a growth mode with the drilling of 11 new wells zone in the Spergen, this being the same zone that has worked so well for the company before in producing extensively at the Arikaree Creek and Broken Spear fields.
Like all small caps Nighthawk has been concerned about the oil price. It continues to monitor oil prices closely and seeks to augment its current hedge positions when market conditions are favourable. The company recently completed additional 2015 oil commodity swaps bringing the total crude oil hedges for the remainder of 2015 at over US$71 a barrel (WTI-Nymex) for the equivalent to 60 per cent of 2014 net production. Nighthawk seems to be comfortable with a US$71 price.
Investors, however, as with so many other small cap concerns are being cautious and Nighthawk is bumping along close to the 52 week bottom of 5.75p at 5.89p.