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Nostra Terra’s strong run continues with maiden month of being cashflow positive (NTOG)

Nostra Terra Oil & Terra (LSE:NTOG) continued its strong run today with news that it has achieved its maiden month of being cashflow positive due in part to strong progress at its recently drilled Twin Well. The firm’s share rose 12.1pc, or 0.5p, to 4.2p after it said operational improvements made at its Pine Mills site, improving oil prices and increased production led it to surpass breakeven in February 2018. Nostra said it expects to remain cashflow positive in the coming months and hopes to achieve annual profitability, although much depends on the way oil prices go at this stage. With the shares having recently peaked at just over 6p, has the recent pullback created a buying opportunity as Nostra continues its march higher?

The fundamentals certainly look encouraging. The company was keen to remind the market that it remains well funded to continue its future drilling campaign from existing resources and banking arrangements. In January, the firm announced the availability of an impressive $5m senior lending facility with Washington Federal Bank. The facility, which has an interest rate of 4.75pc, provides Nostra with an initial borrowing base of $1.2m. This will allow Nostra to continue with its strategy of developing its portfolio to increase oil production and free cash flow generation, while actively acquiring assets that add value to its business.

In a second update this morning, Nostra announced that its recently completed Twin Well in the Permian Basin produced an average of 52bopd over the most recent 12-day production period, above estimates. The well was put into production earlier this month after being drilled to a total depth of 3,200 feet just three months ago. Nostra has two other drill-ready location in the Permian Basin, and one is now being permitted.

Chief executive Matt Lofgran said: “February has been an intensely rewarding month for Nostra Terra. Not only has the Twin Well surpassed our expectations, but we’ve also hit the major milestone of achieving our first month of being cashflow positive as a company as a whole.’

‘Since we started our turnaround strategy in 2016 this has always been our goal. To have reached this target so early in 2018 is extremely encouraging and I would like to thank our operations team for all their efforts in the field. We now have a very strong foundation upon which to build the company, as we introduce new assets and grow oil production.’

‘Overall, we went from acquisition and permitting to producing and receiving revenues in less than four months. This highlights the transformational potential our Permian Basin strategy has for Nostra Terra. With 24 drill ready locations and funding in place, we can now move forward confidently to our next drilling location.’

Held By Production

As we have written before, Nostra’s ability to get the Twin Well into production so quickly demonstrates the effectiveness of its Held-By-Production (HBP) strategy. HBP means existing production at leases stops them from expiring, even if only a handful of barrels a day. This gives the owner the ability to secure acreage at a low cost before ramping up production in a more bullish oil price environment.

The Twin Well is just the first step in a much larger drilling programme for Nostra planned across the Permian Basin, which has one of the best local oil & gas markets in the world. Nostra currently has on 24 drill-ready locations in the area, meaning explosive growth could soon be on the cards. The firm has worked hard under Lofrgran to source producing and near producing oil assets that are profitable below $30 per barrel. With WTI currently trading in a range above $60, conditions look primed for Nostra to capitalise on this highly favourable price environment.

Author: Daniel Flynn

Disclosure:

The author of this piece does not own shares in the company mentioned.

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