US focused oil and gas group Nighthawk Energy Plc (LON:HAWK) has announced details of a farm-out option agreement with Texas oil giant Anadarko. The deal gives Nighthawk and its 50/50 partner Running Foxes Petroleum the option to drill wells on land close to their flagship Jolly Ranch project in Colorado. Shares in the company responded by rising nearly 2% to 26p.
Jolly Ranch lies in Lincoln, Elbert, Washington, Crowley and Kiowa Counties in the southeast part of the Denver Basin and hosts both conventional and non-conventional oil producing horizons targeting primarily Pennsylvanian age formations, namely the Marmaton (conventional) and the Cherokee and Atoka shales (non-conventional).
As part of the deal, Running Foxes, as operator, has agreed the farm-out option agreement with Anadarko, with Nighthawk participating through the terms of its joint operating agreement with Running Foxes. The deal includes Township 9 South, Range 56 West, Section 35 and Township 10 South, Range 56 West, Section 3 – all of which cover an area of 1,280 acres held by Anadarko. These sections are located close to the John Craig 7-2 wildcat well, which was recently drilled by Running Foxes and Nighthawk, and on which production casing has been run and completion and test operations are under way. The well is understood to have encountered “significant hydrocarbons” during drilling. It is located approximately two miles west of the Riverbend field discovery made by Wiepking-Fullerton Energy LLC producing from the Cherokee formation, four miles from the Great Plains field, the location of two high volume Cherokee production wells and approximately 14 miles from the Jolly Ranch core development area.
Running Foxes and Nighthawk now have the option, prior to September 1, 2010, to begin drilling a first option test well at a location of their choice on the land. Following completion or abandonment of that well, Running Foxes will have an option of 120 days from the date of the release of the drilling rig from the first well to begin drilling the second option test well. Supplemental 3D seismic surveys have already been shot and interpreted by Running Foxes and Nighthawk over the option lands as part of the Limon 3D seismic programme which was announced earlier this month.
Should the wells be successfully completed, Anadarko will receive a 20% royalty from production, leaving Nighthawk and Running Foxes each retaining a…
Something that strikes me as misleading about this announcement is that this appears to be FARM-IN by Nighthawk, into acreage owned by Anadarko (which I presume Anadarko view as immaterial to their portfolio), not a FARM-OUT of acreage owned by Nighthawk (which would have been significantly more positive, if the terms were attractive).
As I read the announcement, Anadarko are paying nothing to Nighthawk here. It is Nighthawk that now has an option to spend its shareholders' cash drilling on that new acreage.
Mark
