We highlighted the potential in Nostra Terra Oil and Gas (AIM: NTOG) back in early September and there have been promising developments since. On 26th September, the company announced securing a hedging facility with BP Energy and the share price rocketed intraday 150% to a high of 3.16p. Since then there has been a pullback (as often happens with Nostra), but this morning the company followed up with a very intriguing announcement with a new Permian acquisition, a new well and clues about potential future funding. Things look like they could be about to heat up.
Before coming to today’s news, let’s first consider the significance of this hedging facility. It’s twofold. First, it should provide Nostra with access to much greater funding via a non-equity diluting loan facility. Second, BP Energy Company (a subsidiary of BP) would have performed significant due diligence prior to agreeing to this.
As a Nostra Terra shareholder, I take BP Energy Company’s involvement in the company as a reassuring, long-term sign of confidence from a major player in the industry. We subsequently found out, in a later RNS on 19th October, that BP Energy Company had also waived the margin requirement on the Hedging Facility on the basis that Nostra Terra had been able to demonstrate a track record of stable and secure oil production. This seems positive because it reduces any financial burden Nostra might have faced to access the facility (i.e. paying a down payment for margin). It also is another testament to BP Energy Company’s confidence in the sustainability of Nostra’s oil production at Pine Mills.
All in all this has been an excellent result for the company, but there should hopefully be much more to come.
New acquisition, new drill and a Slam Dunk in the making…
Today, Nostra Terra’s CEO Matt Lofgran announced Nostra Terra’s third acquisition in the Permian Basin, which includes a first target well that has already been successfully drilled.
The Permian Basin is an oil hot-bed spread across a large chunk of Texas. Nostra Terra’s new licence area covers 120 acres, contains existing producing wells and cost $40,000 to acquire a 53.25% working interest. The new license has at least three drill-ready locations and the Estimated Ultimate Recovery (EUR) is 35,000 barrels per well.
The current level of production is minimal but the key here is that the license is ‘held by production’ (HBP). What that means is the license is extended in perpetuity all the while oil is being extracted from the ground, irrespective of volume.
All three of Nostra Terra’s Permian assets are HBP. Although the production figures have drawn mirth from some in the market, they’ve missed the point that the current minimal production isn’t what matters. Securing these assets in such a way allows Nostra to elect to drill when it chooses to do so and when conditions allow.
And conditions are now right for Nostra to embark on its first drill at the new acquisition.
According to Nostra Terra’s announcement a neighbouring operator previously drilled a well on its licence area, which accidentally crossed over into Nostra Terra’s new license area. This well produced 350 barrels of oil in less than 3 days, but once the neighbouring operator completed a directional survey it realised its mistake. The well was plugged and the neighbouring operator handed over a cheque for reparations and volunteered its drilling data.
All in all this has the making of a very good result for Nostra Terra. There is always risk in drilling wells, but the fact that the imminent drill at the new acquisition is targeting a previously drilled and successful target goes a long way to de-risking the play.
Nostra Terra has announced its initial gross target of the new well will be a stabilised 25-40 barrels of Oil a day (bopd). This could add 20bopd to Nostra’s overall production, which might not sound like much at the moment, but in the context of the dozens of drilling targets Nostra Terra now has (and the potential funding to come in to pay for drilling operations), the pieces of this particular puzzle could be falling together nicely.
A look at the chart for Nostra Terra reveals the share price has double bottomed off of a support level of 1.1p this year. When taking into account the fundamental assets and more recent news from Nostra Terra, I think a return to such low levels is highly unlikely a third time.
In recent months, the price has seen a couple of spikes on news, the biggest being on the announcement of The BP Energy hedging facility, but more importantly higher lows have continued to be hit and there is an upward trend forming with the share price now above its 50-day moving average (DMA). The all-important 200-day moving average currently sits at 1.92, and a sustained move above is usually a very positive sign.
Initial resistance can be found around 2.7 then again at the recent high of 3.1, after which a move above 3.74 would indicate a full reversal into a bullish longer-term trend. The Relative Strength Index (RSI) is in positive territory and also shows an upward trend line.
With a current Market Cap of just £2.2 million it seems the market has perhaps not grasped the position the company is now in. Prior to this latest acquisition, Nostra Terra’s Texas assets had an NPV10 valuation of $5.07million. Its interim results declared revenue for the 6 months to 30th June were £549,000 (a fourfold increase on the same period in 2016), and gross profit from operations rose to £163,000. Now that the company could be on the cusp of securing significant finance to drive the further development of its assets and has a Hedging Facility provided by BP Energy, could Nostra Terra be on the verge of a formidable turnaround?
The author owns shares in Nostra Terra