Interesting Week Ahead For Nighthawk Energy

31st May '10 by pezza

3 comments 5171 reads

I was just sitting outside enjoying the sun when I thought I could actually be spending the day writing something brief about Nighthawk Energy Plc (LON:HAWK) and the choice was obvious! It was the current situation in regards to American offshore drilling in general, which got me writing something about HAWK. Surley, investment will be re-directed towards the American onshore assets, which may bring new investors looking towards 'HAWK'.

Interest in American onshore drilling has continued to grow over recent years and can be reflected by Shell's recent purchase of 'East Resources' for USD4.7bn which goes to show there is a large market. Although, HAWK will not achieve the size of 'East Resources', if they can start proving they can produce from their flagship asset, 'Jolly Ranch' on a commercial basis, things will become very interesting. ^[1]

I am aware of the lack of production figures from the company and for that reason, they currently have a large number of disatisfied shareholders which, ironically, includes myself. However, with news expected (or even outstanding) on all projects, along with the expected attention for US onshore drilling, tied in with the two 'Proactive Investor' presentations this week, it could turn to be a very interesting couple of weeks.

So I'd suggest you get to the events and ask many questions.

Some current Pros and Cons:

Lack of production figures: For this reason, I assume no current production until the company starts to report on a consistant basis. Therefore, the expenditure vs production appears to be very high but if they can start producing and report in the manner they started in their 12 April RNS, things may start to look clearer 'http://www.investegate.co.uk/Article.aspx?id=201004120700059910J'. They have a large acreage to cover so will need a buy out or JV partner.
US Onshore vs US offshore - Kind of like good versus bad at the moment.
Schlumberger are still reviewing the remaining Jolly Ranch acreage and is expected to beat expected targets.
Running Foxes & Steve Tedesco: Question marks over HAWK's partner have been around for some time now and either you are comfortable with this or not. Although I don't know how, I am comfortable that RF match HAWK on a $ by $ basis as this has been comfirmed in official announcements etc. Plus, I'm sure…

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marben100

1st Jun '10

Hi pezza,

Couple of points:

We have to be clear that they have a huge project that they can not bring into production alone and there are a number of unrealistic expectations which have got people complaining.

This has always been understood to be the case. However, AIUI the strategy was just to drill a few wells on the acreage, to prove that the economics worked. HAWK have so far failed to do that. They have tried various drilling/completion techniques and, based on the lack of meaningful production to date, these appear to have failed. Schlumberger's reports have focussed on oil in place. Oil in place has little value unless it can be extracted economically, so an upgrade to STOIIP wouldn't add anything to value, unless HAWK can demonstrate that sufficient oil can be recovered in a reasonable timeframe to recoup the cost of drilling and then generate profits.

My second point is that mention of Revere is notable by its absence. It was the apparent oil in place and expectations of reasonable production that caused me to buy into HAWK in the first place, as I understood that and Cisco Springs to be low-risk ventures. Rather than explaining carefully to shareholders exactly what has been going on, all we have are sporadic reports of miniscule production levels - from whiich investors can only infer that all is not well.

Nighthawk is notable for NOT explaining in its RNSs why it has repeatedly failed to meet expectations.

A disgruntled former Nighthawk investor.

Mark

pezza

Hi Marben,

I agree with your view over the company's poor updates which simply are not good enough, so no arguing from me over that.

However, you said:

"Schlumberger's reports have focussed on oil in place. Oil in place has little value unless it can be extracted economically, so an upgrade to STOIIP wouldn't add anything to value, unless HAWK can demonstrate that sufficient oil can be recovered in a reasonable timeframe to recoup the cost of drilling and then generate profits."

Here I assume you are referring to JR and although we don't know the recoverable rates, we must not forget this: "In July 2009 Schlumberger Data & Consulting Services ("Schlumberger") reported that the P50, or most likely, oil in place in the three primary formations over approximately two-thirds of the acreage held is 1.462 billion barrels gross. "

and also this:

"Preliminary project economics based on a single vertical well have been compiled by Nighthawk using PetroScope, a Deloitte proprietary financial software package, and by Benavides Petroleum Engineering Inc., a Denver based consultancy. The studies indicate the project concept to be economically viable, with net backs to Nighthawk of approximately 40% in a US$70 per barrel price environment and demonstrate high rates of return on investment of in excess of 330% on a 10% discounted, through life of well, basis."

You also mention "My second point is that mention of Revere is notable by its absence." but this was covered by the company in March with:

On the Revere project there are currently:

· 157 production wells

· 47 injection wells

· A further 69 wells drilled and awaiting completion

· 107 wells permitted

Aggregate production from Revere is currently averaging over 200 barrels of oil equivalent per day ("boepd"). The operator has indicated that production is expected to increase to at least 500 boepd during 2010.

Although I am a keen holder, I can also see the issues the company has which they need to resolve by making their production figures clearer.

I hope the company can progress from here and if they can start to produce on a commercial scale, I think this could be big.

Pez

2nd Jun '10

Precisely Pezza: after being promised 5-20bopd per well in 2008: http://www.investegate.co.uk/Article.aspx?id=200906030700112488T

109 wells have been successfully drilled or are currently permitted on the project, of which the status is as follows:

•Producing
39

•Awaiting completion
36

•Injection
7

•Permitted
27

Both Devon and Buchanan projects are at various stages of water injection. Primary oil and natural gas production continues on both projects and product is being sold. Once the impact of this water injection process takes effect the expected production rates range between 5-20 barrels of oil per day per well.

All that Nighthawk has managed is < 2bopd per well, - WITH NO EXPLANATION TO SHAREHOLDERS WHATSOEVER.

As if to prove my point, Nighthawk has released another Jolly Ranch RNS today, with no information on production. Nighthawk's obfusaction & lack of transparency continues.

Interesting week ahead for Nighthawk Energy

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Pezza

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