TIDMNTOG
RNS Number : 6195N
Nostra Terra Oil & Gas Company PLC
21 January 2019
21 January 2019
The following amendment has been made to the 'Engineered
Economics Report Mesquite' announcement released on 21 January at
7.00am under RNS No 5713N.
Bullet point four: Removal of the text '[can't be complete if
its an initial assessment?]' which was included in error.
All other details remain unchanged.
The full amended text is shown below.
Nostra Terra Oil and Gas Company plc
("Nostra Terra" or the "Company")
Engineered Economics Report Mesquite
Nostra Terra (AIM:NTOG), the oil and gas exploration and
production company with a portfolio of assets in the USA and Egypt,
is pleased to announce the initial results of the engineered
economics report (the "Report") for the Mesquite Asset in the
Permian Basin ("Mesquite").
Highlights
-- Based on the engineered economics for the initial 1,384 net
acres at Mesquite, Nostra Terra believes the field can generate
o 2,400,000 barrels of recoverable oil (Estimated Ultimate
Recovery, "EUR")
o US$21,600,000 NPV10 valuation at current strip pricing
-- US$28,600,000 NPV10 valuation at US$60 oil
o Pro forma value per acre of US$15,625 at current strip
pricing
-- Pro forma value per acre of US$20,669 at US$60 oil
-- Per Well Economics ("PWE") based on 160-acre spacing
o 5,000ft (1,524m) lateral well
o 300,000 barrels of oil EUR
o US$2.5million NPV10 per well at current strip pricing
-- US$3.3million NPV10 per well at US$60 oil
o Internal Rate of Return ("IRR") of 34% at current strip
pricing
-- IRR of 46% at US$60 oil
o Drill and completion cost estimated at US$2.9mm
o Estimated initial flow rate 265 barrels of oil production per
day ("bopd")
o 20 year well life
o 100,000 barrels produced in first 3 years per well
-- Future acreage growth potential
o Larger area identified for further expansion
-- Field Development Plan based on initial assessment enables
commencement of farm-in process, expected to commence shortly
Summary of key findings
Nostra Terra commissioned Trey Resources, Inc ("Trey"), a
specialist operator of Permian Basin assets with specific
experience in horizontal drilling across the region, to assess the
economic potential of the initial 1,384 net acres Nostra Terra
acquired at Mesquite (the "Initial Acreage") as announced on 22
October 2018. The Report does not represent audited resources but
based on Trey's analysis, Nostra Terra has initially concluded that
the Initial Acreage contains 2,400,000 barrels of recoverable
oil.
Using Trey's current and mid-case estimates, Nostra Terra has
assigned a US$21,600,000 NPV10 valuation to the Initial Acreage at
current strip pricing and a US$28,600,000 NPV10 valuation at US$60
oil. This equates to a pro forma value per acre of US$15,625 at
current strip pricing and US$20,669 per acre at US$60 oil.
Lateral well design
In preparing the Report, Trey has assumed the utilization of
horizontal (lateral) wells at the Initial Acreage to create a Per
Well Economic ("PWE") model.
Trey's well design is based on a single well on 160-acre
spacing. Each lateral well would be 5,000ft (1,524m) long with an
Estimated Ultimate Recover ("EUR") of 300,000 barrels of oil.
Initial production estimated at 265 bopd. The economic life of each
well is estimated to be 20 years, with 100,000 barrels of oil
produced in the first three years of each well.
Trey built its PWE model using a low, medium and high price
deck. It also included an assessment of the Initial Acreage at
current strip pricing.
Using Trey's mid-case estimates at current strip pricing and
US$60 oil, each well's value would be between US$2.5million and
US$3.3million NPV10 and have an IRR of between 34% and 46%. The
NPV10 and IRR estimates are calculated on the basis of each well
costing US$2.9million to drill and complete.
A full table of Trey's PWE estimates can be viewed below:
($ in millions) Oil Price ($ / Bbl)
-----------------------------
Current
$45 Strip $60 $75
--------
IRR
EUR 10% Below Estimate 19% 28% 37% 63%
Estimated EUR at
300 MBbl 24% 34% 46% 77%
EUR 10% Above Estimate 29% 41% 55% 92%
NPV10
EUR 10% Below Estimate $1.0 $1.9 $2.6 $4.3
Estimated EUR at
300 MBbl $1.5 $2.5 $3.3 $5.1
EUR 10% Above Estimate $2.0 $3.1 $4.0 $6.0
Preparation of the Report
Over the last three months Trey has built a ground-up volumetric
model of the Initial Acreage, utilising petrophysical analysis and
historic well results from vertical production in the local area.
Trey has used this model to create a "type curve" (ie best
representation) and economics for 5,000ft (1,524m) lateral
(horizontal) wells at Mesquite. Nostra Terra will be the first
operator to drill a horizontal well at Mesquite.
In its Report, Trey notes that Mesquite has similarities to
another legacy Permian Basin vertical play, of which Trey has
experience. Trey was successful in deploying horizontal drilling
and completion technologies at this project, which targeted the
analogous formation and delivered an IRR to investors of 54%.
In preparing its analysis of the Initial Acreage, Trey created a
15 square mile volumetric map, which covers the area surrounding
Mesquite. Trey conducted petrophysical analysis of this area in
order to create effective porosity, water saturation and net maps
to determine volumetrics (i.e. the quantity and extractability of
oil in place). It also reviewed the historical production results
of c.100 vertical wells in proximity to Mesquite.
Potential for acreage growth at Mesquite
Following the announcement on 17 January 2019, the Company has
an option over a further 600 acres which would increase the net
acres controlled by Nostra Terra to1,984 acres. As part of its work
preparing the Report, Trey has begun an initial review of the
status of leases in the area surrounding Mesquite. This is ahead of
possible future incremental leasing by Nostra Terra. Trey has made
initial recommendations to the Company's Board in respect of its
leasing strategy and which areas to focus on based on the
volumetric map.
Where possible, Nostra Terra's Board intends to capitalize on
its first mover advantage at Mesquite and add to the Company's
acreage position.
Farm in discussions
Now that the Field Development Plan is complete, Nostra Terra is
better positioned to engage in discussions with potential industry
partners about the development of the Mesquite Asset. The Company's
Board is highly encouraged by the work Trey has completed. Having
already received 4 unsolicited approaches from potential industry
partners and secured additional acreage (17 January 2019), the
Board is confident that Mesquite is an attractive farm-in
candidate.
The NPV10 and IRR models highlight the investment case for
Mesquite and it is the Board's intention to start the farm-in
process shortly.
The Company will provide further updates on progress at Mesquite
in due course.
Matt Lofgran, Chief Executive Officer of Nostra Terra,
commented:
"We're very excited to have such strong confirmation of the
potential of the Mesquite Asset. The work that Trey has done on our
behalf has been thorough and detailed. The volumetric map in
particular could provide Nostra Terra with a crucial advantage as
we develop this project.
The Report we received from Trey has helped us build a
compelling investment case for Mesquite. We are especially
encouraged by the NPV estimates and potential IRRs. The base case
is built on conservative numbers and demonstrates a clear path to
substantial value for a Company of our size.
Over the last two and a half years we have worked extremely hard
to reposition Nostra Terra. Our focus was initially on building a
foundation of producing assets that make money in a lower oil price
environment. As we have said all along, we did this so that we
could then introduce much bigger projects to the Company.
The Mesquite Asset is a perfect example of what we hoped to
bring to Nostra Terra, where a single well has the ability to
triple our current production, without the associated exploration
risk. Now that we have the Field Development Plan based on initial
assessment we will open discussions with potential partners, with a
view to realizing considerable value at Mesquite."
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
Competent Person Disclosure
John Stafford, a Director at Nostra Terra with over 35 years
relevant experience in the oil industry, has reviewed this
announcement for the purposes of the current Guidance Note for
Mining, Oil and Gas Companies issued by the London Stock Exchange
in June 2009. Mr. Stafford is a Fellow of the Geological Society
and a member of the Petroleum Exploration Society of Great
Britain.
For further information, visit www.ntog.co.uk or contact:
Nostra Terra Oil and Gas Company
plc
Matt Lofgran, CEO Tel: +1 480 993 8933
Strand Hanson Limited
(Nominated & Financial Adviser
and Joint Broker)
Rory Murphy / Ritchie Balmer /
Jack Botros Tel: +44 (0) 20 7409 3494
Smaller Company Capital Limited
(Joint Broker)
Rupert Williams / Jeremy Woodgate Tel: +44 (0) 20 3651 2910
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END
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