The Teathers App: Investment success with Nostra Terra Oil & Gas (NTOG)

On 20 April 2017, Nostra Terra Oil & Gas (LSE:NTOG) completed a fully subscribed £260,000 Live Market Bookbuild via the Teathers App at 2p per share. This was part of a £500,000 placement into Nostra, in which participants also received 1 for 1 warrants exercisable at 3p per share for 12 months. In total, this presented Nostra with the opportunity to raise £1.25m to fund the company’s turnaround strategy, as it focussed on developing its producing US oil assets.

Since placing at 2p last April, Nostra’s shares have surged hitting highs of just over 6p in early 2018 currently trading between 4-5p. The share price growth has also set a strong pace of trading momentum for Nostra that permits the continued implementation of its held-by-production strategy going forward. Crucially, private investors who used the Teathers app to take part in the Live Market Bookbuild felt the full benefit as Nostra’s management delivered on its stated growth plans and in-turn the company grew its engaged, supportive shareholder base.

With strong support from private investors via the Teathers App, the firm’s subsequent successes provide a good example of what can be achieved when the retail market gets behind companies that have clear plans for growth.

Double Money

Back in March 2017, a month before the Live Market Bookbuild, Nostra had assembled most of the parts in place for its ambitious turnaround strategy. It had acquired the Pine Mills oil field in Texas and its first two licences in the prospective Permian Basin, Texas. However, the company needed more funds to develop these assets and acquire additional projects. In the twelve months following the Live Market Bookbuild, Nostra used the money it received to deliver on these plans. It boosted production, became cash flow positive and trebled its share price at the peal. By 19 April 2018, 98% of the warrants were exercised and the company’s growth trajectory has continued to accelerate.

Not only has the rise of shares led participants to double their money comfortably, but it also put all warrants issued in-the-money. In April 2018, 98.4% of the 25m warrants issued had been exercised, raising an additional £738,000 for Nostra in the process.

As Lofgran put it: “The original placement added to the foundation for our exciting growth over the last twelve months. I’m happy that our funding strategy worked and enabled us to embark fully on our new strategy.”

Permian Basin Potential

Perhaps the most striking progress made by Nostra after the placing was across its acreage in the Permian Basin. The wheels were put in motion in October 2017 when it bought a 53.3pc interest in a third 120-acre Permian lease for just $40,000. This acquisition included the Twin Well drill target and gave the company 24 drill-ready locations in the Permian. Handily, the operator of a neighbouring lease had mistakenly crossed the boundary into Nostra’s new acreage when drilling. This neighbour plugged and abandoned the well, but in its three days of operation it produced 350bbls oil. Nostra wasted no time in making the most of this, and within three months had drilled and put into production the Twin Well at the site. The Twin Well’s reported economics were a 2:1 return on investment at $40bbl oil and estimated ultimate recovery of 35,000bbls.

In April 2018, Nostra announced that the Twin Well was producing an average of 58bopd, adding that it had been granted permits to drill three further Permian wells. Due to the Twin Well’s success, Nostra decided to speed up development in the Permian and spudded the first of two back-to-back wells there in May 2018, targeting 25-40bopd production. Nostra’s ability to drill and reach production so quickly demonstrates the effectiveness of its Held-By-Production (HBP) strategy. HBP means output at leases stops them from expiring, even if it is only generating a handful of barrels each day. The licensing method allowed Nostra to buy production acreage at a low cost, which it then could develop at its own pace when conditions were right and the company has sufficient funds.

 

Pine Mills Expansion

Since completing the Live Market Bookbuild, Nostra also significantly developed its producing Pine Mills oil field in Texas. Between May and September 2017, it acquired the final 12.5pc of the oil field that it did not own from Hammerhead Management Partners. Hammerhead owed Nostra a trade receivable of around $400,000, secured against its Pine Mills stake. Following foreclosure proceedings, Hammerhead’s stake was seized and handed to Nostra, increasing its 1P reserves at Pine Mills to 326,000bbls with an NPV10 of c.$4m, up from $3.5m.

In December 2017, Nostra’s 1P reserves at Pine Mills increased by a further 38pc to around 450,000bbls after it updated its reserves report for the lease. It also identified an oil skirt with up to 12 potential new well locations and 1.39MMbbls of gross technically recoverable oil. These efforts at Pine Mills paid off in February 2018 when Nostra announced record monthly revenues of $161,000 at the site and record production of 126bopd, a 30pc increase on H1 2017. This progress also drove Nostra towards generating record revenues in 2017 and becoming cashflow positive at the Plc level for three consecutive months by the time this case study was published.

Lofgran summed up the value of the facility well at the time: ‘Previously we were able to grow and make shrewd transactions with limited capital. However, now that we have received such strong backing from Washington Federal Bank and our warrant holders, we are well capitalised to realise our ambition of becoming cash flow positive at the Plc level.’ What’s more, the size of the facility and its borrowing base will be re-assessed at least twice a year, with the expectation of increasing in line with production and the use of the BP hedging facility. In other words, the more successful Nostra is, the more funding it will get.

Lending & BP Hedging Facilities

As of publishing, the lending facility is modelled on a conservative oil sales price of $36.50 and only takes into account Pine Mills production. With oil prices sitting much higher than this and the facility not taking into account increased Permian production, more funding could be on its way. Together, the support from BP Energy Company and Washington Federal gave Nostra the rare opportunity to fund growth without carrying out further placings and diluting shareholder value.

The balance sheet strength provided by the Live Market Bookbuild also helped Nostra secure two game-changing finance deals. After a difficult summer, it hit back in September 2017, securing a hedging facility with BP Energy. The facility has no geographical restrictions and is used for price protection to give access to more growth funding. Nostra is one of only a handful of listed oil & gas companies worldwide with a market cap of less than £20million to have such a facility.

The validation of Nostra’s strategy by a subsidiary of a global conglomerate like BP did not go unnoticed by the market. Its shares rocketed by nearly 60pc, setting in place a trading momentum that continued into mid-2018. Nostra started 2018 with a bang, securing a $5m senior lending facility from Washington Federal Bank. This had no geographic restrictions, a $1.2m initial borrowing base and an interest rate of just 4.75pc- virtually unheard of for a junior commodities firm.

Washington Federal is a well-regarded lender in the energy market with around $15bn in assets under management, so its support for Nostra’s strategy was a ringing endorsement. Banks like this do not lend money unless they are confident they will get it back, so Washington Federal’s willingness to extend terms, after a lengthy due diligence process at Pine Mills, was another indicator of Nostra’s robust business model.
The balance sheet strength provided by the Live Market Bookbuild also helped Nostra secure two game-changing finance deals. After a difficult summer, it hit back in September 2017, securing a hedging facility.

The Story So Far

Author: Daniel Flynn & Stuart Langelaan

Disclosure: Daniel Flynn does not own shares in the company mentioned. Stuart Langelaan does own shares in the company mentioned.

 

A downloadable PDF version of this report is available by clicking here

Leave a Reply

Your email address will not be published. Required fields are marked *