TIDMHAWK
RNS Number : 9216W
Nighthawk Energy plc
29 November 2010
Monday 29 November 2010
NIGHTHAWK ENERGY PLC
("Nighthawk" or "the Company")
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
-- Nighthawk will focus on Jolly Ranch and exit all other
current projects to ensure capital is targeted effectively to
maximise upside for shareholder value
-- This strategy, together with a number of ongoing central cost
reductions, will enable Nighthawk to lower the rate of cash burn
significantly and to focus on asset value delivery
-- The Company's interest in the Revere waterflood projects will
be assigned to Running Foxes Petroleum Inc., the operator, as of 1
January 2011 in return for a 5% overriding royalty and a 25% share
of the final settlement of any future sale to a third party, if
executed within two years of the assignment date
-- An exit strategy from the Cisco Springs project is being
formulated and the market will be updated when appropriate
-- The Cliffs licences will be allowed to expire over the coming
months and the Company will not be applying for the licences to be
renewed
-- The exit of non-core assets will result in write downs to
intangible and tangible assets of approximately US$65 million
-- Nighthawk will now focus on Jolly Ranch with a number of
completions and recompletions on existing wells planned for the
next four months
-- Schlumberger Data and Consulting Services ("Schlumberger") in
Denver is completing a detailed reservoir simulation model for the
core Craig and Jolly drilling blocks which will be passed to
Gaffney, Cline and Associates ("GCA") in Houston to provide a
reserves and resources report during Q1 2011
-- Longer-term, Nighthawk will seek to build additional value
through acquiring interests in other assets offering further upside
for shareholders
Strategic Review
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:
Nighthawk Energy plc 020 7887 1454
Tim Heeley, Chief Executive +1 720 344 5154
Mike Thomsen, Executive Chairman
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Westhouse Securities Limited 020 7601 6100
Tim Feather tim.feather@westhousesecurities.com
Matthew Johnson matthew.johnson@westhousesecurities.com
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Matrix Corporate Capital LLP 020 3206 7000
Louis Castro louis.castro@matrixgroup.co.uk
James Pope james.pope@matrixgroup.co.uk
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Financial Dynamics 020 7831 3113
Ben Brewerton ben.brewerton@fd.com
Ed Westropp edward.westropp@fd.com
Bishopsgate Communications Limited 020 7562 3395
Nick Rome nick@bishopsgatecommunications.com
This information is provided by RNS
The company news service from the London Stock Exchange
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