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Nostra reports G6 production and lays out future Permian Basin plans (NTOG)

Nostra Terra Oil and Gas (LSE:NTOG) sat at 3.9p this morning following a bumper operational update for its Permian Basin assets in Texas, including much-anticipated production results from its new G6 well. It said combined average oil production for its Twin and G6 wells, which produce into the same tank battery at the acreage, was 63bopd in July, rising to 68bopd over the most recent 10-day average production period.

Nostra said this figure is the stabilised rate following initial decline as it sees this as more meaningful for long-term analysis than initial rates, which can be unsustainably high. It will continue to report stabilised, average production as it adds more producing wells to its portfolio. The market has been waiting for production figures from G6, part of a back-to-back drilling programme since Nostra reported in June that it had been completed and put into immediate production.

Elsewhere in today’s update, Nostra said its Twin Well- fast-tracked into production in February- has paid back around 50pc of drilling costs over six months. It said this has ‘considerably exceeded’ its expectations, and is putting the cash it receives from the well into general working capital and field development opportunities.

Today also saw Nostra lay out a programme for its future development in the Permian Basin, including plans to commission an independent engineer to update the reserves report for the area before year-end. The company also expects to submit applications for permits to drill three new wells at its Mitchell County leases, where it already has one drilling permit.

Finally, Nostra plans to present technical data of its oil production at the Permian Basin to Washington Federal Bank, the provider of its $5m senior lending facility. Last month saw Washington increase the borrowing base on the facility by $750,000 to $1.95m, however, as previously noted, this is based solely on production at its Pine Mills acreage as of 1st May this year. As a result, the business expects the factoring in of Permian Basin production in the next redetermination to result in a further increase in the borrowing base – providing it with additional capital with which to expand.

Indeed, in today’s update, the firm said it is currently reviewing multiple acquisition opportunities, including producing assets and new prospects, to expand its footprint in the Permian Basin and Texas more widely. It will look to balance broadening its footprint with continuing to grow production and increase cash flow in the weeks and months ahead.

Chief executive Matt Lofgran said: ‘Production at our Permian Basin assets is making an increasingly valuable contribution to Nostra Terra. Not only are we able to reinvest free cashflow, but the faster than expected payback rate of the Twin Well is further evidence of the strength of our model. We’ve always believed that our existing Permian Basin assets have the potential to be a multiple in size of Pine Mills.

Now that we have drilling and production data from the initial two wells to calibrate this view, we will update our independent reserves report accordingly. Whilst we were recently awarded a significant increase to the borrowing base of our Senior Lending Facility, this didn’t factor in our Permian production. We anticipate that the inclusion of this should have a positive impact on future redeterminations of the Senior Lending Facility.’


Speaking to ValueTheMarkets, Lofgran added: ‘Now that we have the foundation in place, the type of assets we’re looking to add to the portfolio are those that can have a much bigger impact.’

Author: Daniel Flynn

The author does not own shares in the company mentioned in this article


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