Nostra Terra Oil and Gas (LSE:NTOG) announced on Monday that the Twin Well drilled in November 2017 has already paid for itself. Just one year has passed since the well was put on to production, ‘considerably’ exceeding original expectations for the timescale of payback.
The G6 Well joined the Twin Well in June 2018, producing into the same tank with a combined output of 53 barrels of Oil per day (bopd). Following on from the success of the Twin and G6 wells Nostra says it has identified a further four Proven Undeveloped locations (PUDs) in Mitchell County. As a result, the company is confident it will be able to further increase its proven ‘1P’ reserves. The locations are relatively risk-free since they offset the existing wells and costs will be minimised with the use of existing infrastructure already in place.
A reserve assessment is currently in its final stages and is expected to upgrade existing resources. The assessment will include the recently acquired Mesquite asset which Nostra is looking to develop with a horizontal drilling campaign. Last week Nostra announced it had opened a data room containing the analysis of the Mesquite asset conducted by Trey Resources. Nostra commissioned Trey to create a Field Development Plan for Mesquite, bringing in its experience of drilling horizontal wells in the region. Trey’s report highlighted the significant potential on offer to Nostra should it opt to drill horizontal wells, estimating each well could produce around 250 bopd.
The data room will facilitate discussions with potential partners with regard to the development of Mesquite. Back in November Nostra reported that it was already receiving unsolicited approaches from interested parties wherein Nostra Terra would be carried by a partner in initial drilling costs. Now that a picture of the true potential of Mesquite has been revealed it is likely farm-in discussions will start in earnest.
Matt Lofgran CEO of Nostra believes the company is very well positioned, previously saying “Nostra Terra has a crucial first mover advantage in this prolific oil field” and Nostra is continuing to build on its position. Earlier in January, Nostra announced it had secured an option to add a 75% working interest over a further 800 acres to its existing Mesquite asset. If exercised, this would create a larger continuous stretch of land, all of which is deemed suitable for horizontal drilling.
The company has established a stable production base, is well hedged against any further drops in the oil price, and is poised to step a gear with the Mesquite project. Securing a decent farm-in could well be the catalyst to allow Nostra to fully capitalise on its first mover advantage.
Commenting on today’s news, Lofgran said:
“We’re very happy to see the Twin Well reach payback so quickly. Our focus has been to build a solid foundation of assets where existing wells generate cash flow, and where new wells can be drilled with strong returns, in a lower oil price environment. The performance here is a strong endorsement for our investment in the area.
With Pine Mills, the existing Permian Basin assets, and now the Mesquite Asset, which has such large potential, we have a strong portfolio and foundation from which we plan to continue growing.”
Author: Stuart Langelaan
Disclosure: The author owns shares in the company mentioned above