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Nostra Terra boasts strong Twin Well production as returns boosted by robust oil prices (NTOG)

Nostra Terra Oil and Gas (LSE:NTOG) has seen production at its Twin Well in the Permian Basin continue to surpass management’s expectations, continuing a strong run for the company. The well, which jumped straight into production in February after skipping the test phase, produced on average 58bopd over 30 days. This is ahead of the medium-term targeted production of between 25-40bopd for the well’s first year in operation, which bodes well for the future. Having become cash flow positive in February, things are looking bright for the company.

The Twin Well’s economics look even more attractive when one considers that Nostra originally anticipated a 2:1 return on investment at an oil price of $40 a barrel. With West Texas Intermediate Crude Oil currently sitting at $62 a barrel, these returns only look set to be amplified. According to Nostra, the Twin Well has a shallow decline curve and an estimated ultimate recovery of 35,000 barrels.

Alongside the Twin Well’s production figures, Nostra also announced that it has secured permits to drill two additional wells at its Permian Basin leases. The news comes just two weeks after Nostra announced that it had received approval to drill another well at the Permian Basin, meaning three new wells are now on the cards in the highly prospective area.

All three wells will target the Clear Fork Formation in the Permian Basin, the same formation as the Twin Well.  They also have similar economic profiles to the Twin Well and will be funded entirely by existing resources and facilities. Nostra expects to begin drilling the first of the three wells in early May, and said it is currently in the process of preparing to build the drilling location and securing a rig. The business is also continuing to assess additional sites in the Permian Basin for future drilling. Shares were up 3.7pc, or 0.1p, to 3.8p on the offer at the time of writing.

Matt Lofgran, Chief Executive Officer of Nostra Terra, said: ‘We are very excited about the strong production from the Twin Well, which has continued to surpass our expectations. Having already become cashflow positive, our focus is to build that further. We’re looking forward to drilling the next well where we expect any increase in production to improve the Company’s bottom line.’

The two additional permits and strong production from Nostra’s Twin Well demonstrates the effectiveness of its Held-By-Production (HBP) strategy in combination with access to proper working capital. HBP means existing output at leases stops them from expiring, even if only a handful barrels a day. The approach gives the owner the ability to secure acreage at a low cost before ramping up production in a more bullish oil price environment.

With Nostra sitting on 24 drill-ready locations at the Permian Basin, today’s update marks another step forward in a more extensive long-term growth strategy for its assets in the area. What’s more, the other sides of Nostra’s business are also performing well. In March, it announced that it had achieved record production and revenues at its Pine Mills field

Furthermore, the firm announcing that it had achieved its first month of being cashflow positive in February and in January it secured a remarkable $5m lending facility with Washington Federal Bank. And all this against a healthy macro backdrop which has seen oil prices stand up so far this year after a strong 2017. With Nostra’s shares currently sitting at 3.8p, giving it a market cap of just £4.8m, explosive growth could soon be on the cards.

Author: Daniel Flynn

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

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