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Nostra Terra receives approval for new well (NTOG)

Nostra Terra Oil & Gas (LSE:NTOG) has received approval to drill a new well at its Permian Basin leases in Texas, continuing a strong start to the year for the firm. The company is preparing to drill the well in May this year and is currently in the process of securing a rig.

The new drilling location will target the Clear Fork formation, the same site as Nostra’s recent, successful Twin Well, and will be fully funded from existing resources and facilities. Like the Twin Well, the new drill target offers an anticipated 2:1 return on investment at $40/barrel oil, estimated ultimate recovery of 35,000 barrels of oil per well, and a target of 25-40bopd average in the first year.

Nostra added that permitting is ongoing for the second and third new wells it intends to drill, and said it is currently assessing additional locations to permit for future drilling. Shares rose 1.4pc, or 0.1pc, to 3.7p following the news.

Today’s announcement comes just weeks after Nostra announced its first month of being cashflow positive in February due to strong progress at its Twin Well, which it managed to fast track into production. It was also boosted by operational improvements made at its Pine Mills site, which included record production at the site, and improving oil prices.

Matt Lofgran, chief executive of Nostra Terra, said: ‘Last month we announced the success of the Twin Well, in the Permian Basin, where initial production rates surpassed expectations. At the same time we also became cashflow positive at the corporate level. Positive cashflow generation has since continued to increase thanks to the production increase that we achieved in our Pine Mills asset in East Texas.’

‘We’re excited to be drilling the next well in the Permian Basin so quickly after the successful Twin Well and aim to continue growing production and increasing cashflow further. The new well has a similar economic profile to the Twin Well and we plan to update shareholders regularly on progress.”

With Nostra already being cashflow positive, if the next well delivers anything like the Twin Well, this could potentially add several hundred thousand dollars to the company’s bottom line. The company can draw from its £5million senior lending facility with Washington Federal Bank to fund further growth.

The Twin Well was Held-By-Production (HBP) and Nostra has demonstrated how quickly a HBP asset can be turned into a producing well. HBP means existing production at leases stops them from expiring, even if only a handful of barrels a day are extracted. 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 24 drill-ready locations in the area. Lofrgran has sourced producing and near producing oil assets that are profitable below $30 per barrel. With WTI currently trading in a range above $60, Nostra could capitalise on this highly favourable price environment.

Author: Daniel Flynn


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

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