The share price of Nostra Terra Oil and Gas(LSE:NTOG) endured a sizeable drop over the last quarter of 2018 in line with the latest oil price rout. The kicker was the stock falling out of its upward price channel while the wider markets ended the year with poor sentiment rather than festive cheer. However, OPEC does appear to have steadied the ship with cuts in production of 1.2 million barrels of oil per day (bopd) pledged from the start of this year. Subsequently, the oil price has found a base and bounced back with Brent almost back at $60, and WTI touching $50 on Monday.
Nostra Terra appears to have found its footing again with a healthy bounce off lows of 2.05p. The stock consolidated creating a Falling Wedge pattern stretching back to October and consolidated during December. The Falling Wedge is a bullish pattern that forms as the price action narrows and usually, the outcome is an upward breakout. The Nostra share price has moved up out of the wedge today and yesterday with a close above needed for confirmation.
The Relative Strength Index (RSI) is in positive territory – above 50 – and its rise during the consolidation phase is also a bullish sign. There’s resistance at 2.9p, which if broken would open up the possibility of a move to 4.2p.
In December, Nostra announced it was opening a new office in Dallas to support the next phase of its activities in the Permian Basin. In October the company purchased a 1,384 net acre prospect called Mesquite that is proven to produce from multiple, stacked-pay reservoirs. Mesquite has an estimated net pay of over 60 feet in its primary target formation and Nostra believes that Mesquite has the potential to host 8 horizontal wells, which could deliver initial production rates of 200-300 bopd.
Nostra has commissioned a Field Development Plan (FDP) by Trey Resources, an operator of Permian Basin assets with specific experience in horizontal drilling across the region. The plan will detail the economics for Mesquite and is expected to be delivered early this year.
Advances in horizontal drilling have been one of the reasons why the Permian Basin has become so productive. There is very strong interest in horizontal oil plays and in Nostra’s operational update released in November, the company highlighted it has already received ‘four unsolicited expressions of interest from potential industry partners wherein Nostra Terra would be carried by a partner in initial drilling costs’. Such a deal could offer Nostra the chance to substantially accelerate its operations.
If the share price proves to have bottomed, a potential new trend channel (shown in dashed lines) opens up a longer-term target of around 6.5p.