TIDMHAWK
RNS Number : 7619D
Nighthawk Energy plc
29 March 2011
29 March 2011
NIGHTHAWK ENERGY PLC
("Nighthawk" or "the Company")
Half Yearly Report
Nighthawk, the US focused hydrocarbon development and production
company (AIM: HAWK and OTCQX: NHEGY), announces its interim results
for the six months ended 31 December 2010.
Financial Highlights
-- Revenue of US$1.30 million (2010: US$1.01 million)
-- Loss on disposal of US$40.4 million on Revere plus impairment
of US$1.95 million on Cliffs and US$21.26 million on Cisco
Springs
-- GBP25 million equity draw down facility entered into with
Darwin Strategic
-- Deriving value from the Jolly Ranch project continues to be
the key focus
Operational Highlights
-- Ongoing recompletion and completion operations at Jolly
Ranch
-- Focus remains to optimise completion method to increase
production
Post Period End Highlights
-- Schlumberger report confirms increased estimates of Oil
Initially In Place over part of the Jolly Ranch project
-- Gaffney, Cline & Associates evaluation of Reserves and
Resources underway on Jolly Ranch area
Tim Heeley, CEO of Nighthawk, commented:
"Following our strategic review we took the decision to focus
activity on our core Jolly Ranch project in order to accelerate
progress and maximise returns from what we believe is an as yet
unrecognised asset. As a result we exited and wrote down the value
of projects that did not offer value and scalable upside for
investors. Recent developments including an uplift in the oil in
place estimates and, more importantly, initial results from our
workover programme, have reinforced the conclusions we reached
following the strategic review.
"Although the full effects of the ongoing cost saving
initiatives will not be felt until the end of the full year,
controlling expenditure continues to be a priority to ensure funds
are focused on proving up value on the Jolly Ranch project.
"Nighthawk has taken Jolly Ranch from an initial concept to a
comprehensive, but still early stage, shale development with 19
wells, early production and excellent understanding of the key
geological and geo-mechanical characteristics needed to grow a
shale play. The development is far from fully understood but good
progress is being made. The process from here is to continue the
fracturing and stimulation activity, grow the well portfolio and
accelerate the rate of development."
Nighthawk Energy plc 020 3405 1982
Tim Heeley, CEO +1 720 344 5154
Michael Thomsen, Executive
Chairman
Westhouse Securities Limited 020 7601 6100
Tim Feather tim.feather@westhousesecurities.com
Matthew Johnson matthew.johnson@westhousesecurities.com
Matrix Corporate Capital LLP 020 3206 7000
James Pope james.pope@matrixgroup.co.uk
Financial Dynamics 020 7831 3113
Ben Brewerton ben.brewerton@fd.com
Ed Westropp edward.westropp@fd.com
CEO's Statement
Financial and Corporate Overview
The financial results for the period ended 31 December 2010
reflect the operations of the Company prior to the implementation
of the conclusions of our strategic review and the consequently
restructured asset base. The corporate and operational cost
reduction measures implemented following the management changes of
29 September 2010 are now beginning to be reflected in the accounts
but the full effect will not be seen until the second half of the
year.
The Administrative Expenses figure of US$25.24 million includes
a number of cost items that are unrelated to the ongoing operations
of the business, including US$1.95million of charges relating to
the impairment of the Cliffs project in Illinois and US$21.26
million for Cisco Springs in Utah. Nighthawk continues to focus on
cutting unnecessary expenditure and ensuring that the Company's
resources are appropriately allocated to deliver value.
In recent months the Company has issued periodic operational
updates and launched a new corporate website. The Company is also
pursuing a number of initiatives to strengthen its commercial and
operational capabilities as it grows which will be announced in due
course.
Strategic Review
The conclusion of the Strategic Review, undertaken in October
2010, was to focus primarily on the Jolly Ranch project, exit the
Revere and Cliffs projects and actively consider disposal options
for the Cisco Springs project. The accounting effect of these
actions is reflected in these interim results as follows:
Revere Project
The project was disposed of to the Operator as of 31 December
2010 and the Company no longer has any liability associated with
the project. The Company has written down US$40.4million in
relation to the disposal of the asset whilst retaining an asset in
the Balance Sheet for the Over Riding Royalty of 5% of gross
production for three years.
The Company retains the right to back into the project for 120%
of back costs up to 31 December 2013 and will also receive 25% of
any future sale if undertaken before this date.
Cisco Springs
The Cisco Project has been impaired in the accounts by US$21.26
million, with US$2.5 million maintained on the Balance Sheet as a
reflection of management's estimate of the net realisable value of
the project.
There remains a small level of expenditure on the project due to
the Operator recently employing Nuclear Magnetic Resonance ("NMR")
log analysis techniques to assist in identifying missed oil bearing
zones in existing well bores with a view to maximising oil
production in the interim, given the current oil price.
The Company continues to examine a number of disposal options
for its 50% net working interest in the project.
Cliffs
The Cliffs project has had no wells drilled on it and the leases
are being allowed to lapse as part of the Strategic Review. Costs
of US$1.95million have been written down with respect to this
project.
Jolly Ranch Group
Nighthawk holds a 50% interest in the Jolly Ranch Group Project
("Jolly Ranch"), covering 410,000 gross acres in Lincoln, Elbert
and Washington Counties, Colorado. Jolly Ranch has multiple
conventional and non-conventional oil bearing horizons. Nighthawk
is primarily targeting Pennsylvanian age Cherokee and Atoka
shales.
The process is to learn how the wells can be completed and
stimulated with maximum commercial payback, which is of paramount
importance in deriving value from the project for shareholders.
Production is of course an important factor in helping derive this
value but at the current stage of development the determination of
the optimal completion procedures takes precedence. The injection
of capital into the project at this stage is not proportionate to
the level of reserves, however continuing development should see
this relationship improve and revenues increase.
In July 2009 Schlumberger Data and Consulting Services
("Schlumberger") undertook its first study of the Jolly Ranch
project and assessed 246,000 gross acres. The conclusion was that
approximately 1.4 billion barrels of oil were in place in the
Marmaton, Cherokee and Atoka formations; with the shales
contributing approximately 2,150 bbl/acre. In addition Schlumberger
concluded that the shales are present under most, if not all, of
Nighthawk's acreage.
Following this report further wells were drilled thereby
increasing our knowledge of the inter-bedded shale formations and
establishing long term test production. This increased
understanding led to Schlumberger being commissioned to undertake a
more detailed simulation study focused on approximately 3,200 acres
of Craig Ranch, part of the Jolly Ranch project, where many of the
wells and the production are located.
This second report not only concluded an approximate 14 fold
uplift in the oil in place within the Shale horizons on the acreage
studied but also gave an initial assessment of the potential
recovery from the shales.
Interval OOIP (Barrels per Acre)
July
2009 January 2011
Total Cherokee (including
Shale and Tebo) 638 14,219
Total Atoka 1,515 15,625
Total Marmaton
(conventional) 3,726 5,313
Total 5,879 35,157
A recovery rate was assessed on the basis of a number of
prediction scenarios with various well and economic parameters and
cut offs and is presented for each of the horizons below for the
modelled area based on vertical wells on 40-acre well spacing.
OOIP Water: Recovery
(Barrel per Oil Rate (% of
Interval Acre) (BBL) OOIP)
Marmaton 2,344 17.4:1 0%
Marmaton B 2,969 4.7:1 0%
Cherokee 5,625 1.7:1 4.9%
Shale 3,281 4.5:1 2.6%
Tebo 5,313 7.4:1 17.3%
Upper/Lower
Atoka 7,656 8.0:1 10.1%
Lower Atoka
/Morrow 7,969 5.5:1 7.4%
Average
Model
Area 7.5%
Value Add
The capital investment in Jolly Ranch to date is approximately
US$46 million net to Nighthawk and has taken the project from an
initial concept to a comprehensive, but still early stage, shale
development with 19 wells, early production and an excellent
understanding of the key geological and geo-mechanical
characteristics needed to grow a shale play.
The development is far from fully understood but progress is
being made. The process from here is to continue the fracturing and
stimulation activity, grow the well portfolio and to accelerate the
rate of development.
Jolly Ranch - Current well status
Well Previously Reported Status Current Status
(Jan 2011)
John Craig In current completion Test production, but being
7-2 programme evaluated for recompletion
Craig 4-4 Long term test production Long term test production
Craig 4-33 In current completion Recently recompleted
programme and production testing
from commingled Cherokee
and Atoka
Craig 6-4 Test production Test production
Craig 6-4 SWD Salt water disposal Salt water disposal
Craig 7-34 Awaiting recompletion Awaiting recompletion
Craig 8-1 In current completion Recently added Atoka
programme completions and production
testing
Craig 10-28 Test production Recently commingled Cherokee
and Atoka and production
testing
Craig 12-28 Test production Recently commingled Cherokee
and Atoka and production
testing
Craig 12-33 In current completion Recently commingled Cherokee
programme and Atoka and production
testing
Craig 15-32H Test production Test production
Craig 15-34 In current completion In current completion
programme programme
Craig 16-32 Long term test production Long term test production
Jolly Ranch Awaiting recompletion Awaiting recompletion
2-1
Jolly Ranch Awaiting recompletion Awaiting recompletion
4-13
Jolly Ranch Salt water disposal Salt water disposal
10-1 SWD
Jolly Ranch Test production Test production
10-5
Jolly Ranch Awaiting recompletion Awaiting recompletion
16-1
Williams 10-27 In current completion Recently recompleted
programme in the Atoka and production
testing
Production
Production volumes from the project continue to be a focus as
Initial Production ("IP") rates and long-term production profiles
are a key factor in determining value in the shale play.
Ongoing test production means that wells are producing as the
performance of the acidisation and fracturing method applied is
observed. It can take many weeks for an acidised or fracced well to
settle into stabilised flow and the type curve, a profile of a
"typical" well, can be developed.
Shale wells are developed by drilling wells as the work needed
to understand the completion methodology has to be undertaken in
the well bore; the more wells that are drilled, the greater the
confidence and understanding of the shale leading to a greater
number of wells that can be brought into production.
Gaffney Cline
Gaffney Cline is working on the assessment of reserves and
resources of the Jolly Ranch development. The study is expected to
be concluded and the results announced in the near term.
Summary
Nighthawk's strategic aims for the remainder of 2011 are to:
-- Increase production levels
-- Establish reserves and resources at Jolly Ranch for the first
time
-- Continue to improve our technical understanding of our assets
so as to underpin a valuation typical of other US shale oil
plays
-- Enhance visibility for investors in Europe and the US and
increase institutional participation
-- Establish core operational competencies within the
Company
Nighthawk is increasingly well positioned for the future. Solid
progress is being made towards demonstrating the potential
significant value at Jolly Ranch and the Company is well positioned
in the context of the broader global geopolitical backdrop.
The management team and Board remain confident that significant
progress will be achieved towards our goals in 2011 and beyond.
Tim Heeley
Chief Executive Officer
Unaudited Condensed Consolidated Income Statement
for the six months ended 31 December 2010
Six months Six months Year
ended 31 ended 31 ended 30
December December June
Notes 2010 2009 2010
US$ US$ US$
Continuing operations:
Revenue 1,304,650 1,013,846 2,148,689
Administrative expenses 1 (25,243,572) (1,905,437) (3,699,775)
------------- ------------ ------------
Operating loss (23,938,922) (891,591) (1,551,086)
Finance income 47,177 149,378 269,257
Profit / (loss) on sale of
available-for-sale
investments 227,659 (4,097) (1,263)
------------- ------------ ------------
Loss before taxation (23,664,086) (746,310) (1,283,092)
Taxation 3 (11,478) - -
Loss for the financial
period from continuing
operations (23,675,564) (746,310) (1,283,092)
Loss for the financial
period from discontinued
operations 4 (40,379,276) - -
------------- ------------ ------------
Loss for the financial
period (64,054,840) (746,310) (1,283,092)
Attributable to:
Equity shareholders of
the Company (64,054,840) (746,310) (1,283,092)
============= ============ ============
Loss per share from
continuing operations
attributable to the equity
shareholders of the
Company
Basic and diluted loss
per share (US cents) 2 (7.03) (0.24) (0.40)
Loss per share from continuing
and discontinued operations
attributable to the equity
shareholders of the Company
Basic and diluted loss
per share (US cents) 2 (19.03) (0.24) (0.40)
Unaudited Condensed Consolidated Statement of Comprehensive
Income
for the six months ended 31 December 2010
Six months Six months Year
ended 31 ended 31 ended 30
December December June
Notes 2010 2009 2010
US$ US$ US$
Loss for the financial
period (64,054,840) (746,310) (1,283,092)
Other comprehensive income
Fair value (loss) / gain
on available-for-sale financial
assets (122,646) (38,157) 35,821
Foreign exchange gains
/ (losses) on consolidation 147,535 54,482 (1,247,565)
------------- ----------- ------------
Other comprehensive income
for the financial period,
net of tax 24,889 16,325 (1,211,744)
------------- ----------- ------------
Total comprehensive income
for the financial period
attributable to the equity
shareholders of the Company (64,029,951) (729,985) (2,494,836)
============= =========== ============
Unaudited Condensed Consolidated Balance Sheet
as at 31 December 2010
31 31 30
December December June
Notes 2010 2009 2010
US$ US$ US$
Assets
Non-current assets
Property, plant and equipment 12,090,314 20,257,172 24,575,543
Intangibles 35,884,804 72,346,141 80,584,488
Available-for-sale financial
assets 21,423 1,674,344 1,620,592
------------- ------------ ------------
47,996,541 94,277,657 106,780,623
Current assets
Trade and other receivables 2,384,998 616,624 701,169
Cash and cash equivalents 4,561,140 20,627,643 7,217,285
------------- ------------ ------------
6,946,138 21,244,267 7,918,454
Total Assets 54,942,679 115,521,924 114,699,077
------------- ------------ ------------
Equity and Liabilities
Capital and reserves
attributable to the
Company's equity
shareholders:
Share capital 1,594,553 1,480,731 1,480,731
Share premium account 124,375,872 119,269,072 119,252,765
Foreign exchange translation
reserve (3,798,579) (2,644,065) (3,946,114)
Retained earnings (71,063,176) (6,422,886) (6,885,690)
Share-based payment reserve 928,722 856,130 889,972
Merger reserve 180,533 180,533 180,533
------------- ------------ ------------
Total equity 52,217,925 112,719,515 110,972,197
Current liabilities
Trade and other payables 2,724,754 2,802,409 3,726,880
Total Equity and Liabilities 54,942,679 115,521,924 114,699,077
------------- ------------ ------------
Unaudited Condensed Consolidated Cash Flow Statement
for the six months ended 31 December 2010
Six months Six months Year
ended 31 ended 31 ended 30
December December June
Notes 2010 2009 2010
US$ US$ US$
Cash outflow from operating
activities (719,431) (630,070) (2,400,327)
Cash flow from investing
activities:
Purchase of intangible
assets (7,265,488) (11,962,667) (15,500,861)
Purchase of property,
plant and equipment (1,806,273) (7,681,025) (14,871,429)
Proceeds on disposal of
financial assets 1,800,269 81,692 84,526
Dividend received 24,958 36,844 78,775
Interest received 22,220 112,535 190,482
------------ ------------- -------------
Net cash used in investing
activities (7,224,314) (19,412,621) (30,018,507)
Cash flow from financing
activities:
Proceeds on issue of new
shares 5,238,462 36,584,185 36,584,185
Expenses of new share
issue (1,533) (1,600,300) (1,616,608)
------------ ------------- -------------
Net cash generated from
financing activities 5,236,929 34,983,885 34,967,577
Net (decrease) / increase
in cash and cash equivalents (2,706,816) 14,941,194 2,548,743
Cash and cash equivalents
at beginning of period 7,217,285 5,932,315 5,932,315
Effects of foreign exchange
movements 50,671 (245,866) (1,263,773)
Cash and cash equivalents
at end of period 4,561,140 20,627,643 7,217,285
Notes to the Unaudited Financial Information
for the six months ended 31 December 2010
Accounting policies
The interim financial information in this report has been
prepared on the basis of the accounting policies set out in the
audited financial statements for the year ended 30 June 2010, which
complied with International Financial Reporting Standards as
adopted for use in the European Union ("IFRS").
IFRS is subject to amendment and interpretation by the
International Accounting Standards Board ("IASB") and the IFRS
Interpretations Committee and there is an ongoing process of review
and endorsement by the European Commission.
The financial information has been prepared on the basis of IFRS
that the Directors expect to be applicable as at 30 June 2011, with
the exception of IAS 34 Interim Financial Reporting.
The condensed financial information for the year ended 30 June
2010 set out in this interim report does not comprise the Group's
statutory accounts as defined in section 434 of the Companies Act
2006.
The statutory accounts for the year ended 30 June 2010, which
were prepared under IFRS, have been delivered to the Registrar of
Companies. The auditors reported on these accounts; their report
was unqualified; did not contain a statement under section 498(2)
or 498(3) of the Companies Act 2006, and did not include reference
to any matters to which the auditor drew attention by way of
emphasis.
1. Administrative Expenses
Included within Administrative Expenses is an impairment of
US$1.95 million for the Cliffs project and an impairment of
US$21.26 million for the Cisco Springs project.
The Cliffs project has no wells drilled on it and the leases are
being allowed to lapse following the Strategic Review that took
place in October 2010, resulting in a full impairment of the
intangible asset and property, plant and equipment associated with
the project.
The Cisco Springs project has been impaired down to a residual
value of US$2.5 million in the Balance Sheet as a reflection of
management's estimate of the net realisable value of the
project.
2. Loss per share attributable to the equity shareholders of the
Company
Basic loss per share
Six months Six months
ended ended Year ended
31 December 31 December 30 June
2010 2009 2010
Loss per share from continuing
operations (US cents) (7.03) (0.24) (0.40)
Loss per share from discontinued
operations (US cents) (12.00) - -
------------- ------------- -----------
Total basic loss per share (US
cents) (19.03) (0.24) (0.40)
The earnings and weighted average number of ordinary shares
used in the calculation of basic earnings per share are as
follows:
Six months Six months
ended ended Year ended
31 December 31 December 30 June
2010 2009 2010
US$ US$ US$
Earnings used in the calculation
of total basic and diluted
earnings per share (64,054,840) (746,310) (1,283,092)
Earnings for the year from
discontinued operations used in
the calculation of basic and
diluted earnings per share from
discontinued operations (40,379,276) - -
------------- ------------- ------------
Earnings used in the calculation
of basic earnings per share from
continuing operations (23,675,564) (746,310) (1,283,092)
Six months Six months
ended ended Year ended
31 December 31 December 30 June
2010 2009 2010
Number of shares
Weighted average number of
ordinary shares for the purposes
of basic earnings per share 336,600,867 312,918,822 321,210,436
As at 31 December 2010, 30 June 2010 and 31 December 2009 the
options in issue are not dilutive under IAS 33, Earnings per Share,
because they would have the effect of decreasing the loss per
share. As such there is no difference between the basic and
dilutive loss per share at these dates.
Six months Six months
ended ended Year ended
31 December 31 December 30 June
Number of shares 2010 2009 2010
Weighted average number of
ordinary shares for the purposes
of the diluted loss per share 342,850,687 319,168,822 327,460,436
---------------------------------- ------------- ------------- ------------
3. Taxation
There was a small current tax charge of US$11,478 paid by a US
subsidiary in the interim period, but no other current tax charge
for the period due to the loss incurred (2009: US$ nil).
A deferred tax asset in respect of trading losses and share
based payments has not been recognised due to the uncertainty over
timing of future profits. The trading tax losses are recoverable
against suitable future trading profits.
4. Loss from discontinued operations
As a result of the Strategic Review, undertaken in October 2010,
the Revere project was disposed of to the Operator as of 31
December 2010 and the Company no longer has any liability
associated with the project.
The Company has recognised a loss on disposal of US$40.4million
in relation to the Revere project representing the sale proceeds
less the costs of the project. Part of the sale proceeds include
the recognition at fair value of an intangible asset of US$294,000
for the Over Riding Royalty of 5% of gross production and the
Company's retention of the right to back into the project for 120%
of back costs up to 31 Dec 2013 and receipt of 25% of any future
sale if undertaken before this date.
5. Share Capital
During the period to 31 December 2010, 28,463,600 shares were
issued at 11.51p raising GBP3.275 million as a result of a draw
down from the EFF agreement.
Following the Placing, there are 358,103,080 ordinary shares of
0.25p each in issue.
6. Post Balance Sheet Events
On 1 February 2011, 20,000,000 shares were issued at 9.50p
raising GBP1.899 million as a result of a draw down from the EFF
agreement.
Following the Placing, there are 378,103,080 ordinary shares of
0.25p each in issue.
7. Copies of the Half Yearly Report
A copy of this Half Yearly Report is now available on the
Company's website at: www.nighthawkenergy.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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