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Nostra Terra CEO Matt Lofgran on his plans to take the business to a ‘new league altogether’ (NTOG)

At this time last year, Nostra Terra Oil & Gas (LSE:NTOG) rallied strongly with its share price more than trebling in just a few short months. The wider market was similar to the current environment, but oil prices are now considerably higher and the sector more buoyant. Matt Lofgran, Nostra Terra’s chief executive believes better times are ahead for the Company as it looks to expand its footprint. We caught up with him to get more details.

Nostra’s financial position has strengthened considerably this year thanks to numerous positive developments. Operationally, a substantial increase in US production has seen the business become cash flow positive at the corporate level. What’s more, it posted record revenues of $1.15m in the first half of 2018, up 55 per cent on the compared with the same period in 2017, and turnover is expected to increase even further in the second half of the year.

The firm has also attracted significant financing, securing a $5m senior lending facility with respected lender Washington Federal Bank in January to complement its existing hedging facility with BP. The borrowing base on the facility, which is assessed at least twice yearly, has already increased from $1.2m to $1.95m to reflect increased production. With this figure not yet reflecting all of Nostra’s US output, further increases are anticipated. Against this positive operational backdrop, strengthening WTI prices have also been boosting cashflow.

With Nostra’s capital position looking strong, Lofgran says the firm has now begun to pursue larger assets. He hopes these will accelerate company growth significantly:

‘We now have our foundation in place. This has been an important milestone for us. We will continue to build the foundation through additional drilling and other means, however, now we are positioned to diversify and expand our portfolio. We can acquire much larger assets with much more impact, meaning wells with much higher production and reserves, taking Nostra into a new level moving forward.’

Permian potential

Nostra has been looking to add to its asset portfolio in established oil provinces around the world. Lofgran’s goal is to leverage his team’s global experience to expand the company’s operations. However, he tells us the firm’s primary focus for the time being has been close to home, in Texas’ Permian Basin.

Nostra established a footprint in the Permian in November 2016. In late 2017 the firm drilled its first well here, the Twin Well, and brought that into production in January this year. It then successfully brought another well, the G6, into production four months later. In August, the company said these wells were producing at an average of 63 bopd and that it was permitting another three wells.

Although it will continue to develop its existing Permian assets, Nostra now hopes to step up its operations here, to take advantage of the great potential that has attracted major international firms into the region. Indeed, total Permian production is expected to grow to 5.4MMbopd by 2023, driven by nearly 41,000 new wells and $308bn in upstream spending. Lofgran says Nostra will benefit from its existing local presence and size as it looks to expand:

‘For a company of our size, securing additional assets in this region presents a significant, substantial opportunity. We have an established operational team in the area and a reliable network of industry professionals in Texas with whom we work daily in sourcing and evaluating new opportunities. These people bring with them key insights into the local market. When combined with the BP facility and the Washington Federal Facility, we have in place the necessary components to execute the next phase of our Permian Basin expansion strategy.’

Moving into horizontal drilling?

Nostra has wasted no time in getting to work on its next stage of growth, and has already identified numerous acquisition targets in the Permian. It hopes to secure enough contiguous acreage to drill horizontal wells as well as vertical wells. Horizontal wells can produce multiples in daily oil production from the same formation as a vertical well.

To achieve this goal, Lofgran plans to buck the US trend of purchasing many small leases to slowly build a significant position. Instead, he is aiming to make large single acquisitions before bolting-on additional acreage if available:

‘As horizontal wells need contiguous acreage we are looking at making a large initial acquisition to give us a considerable footprint in an area. We can then look to expand the footprint further through leasing and additional acquisitions when appropriate. This will ensure we can deliver both horizontal and vertical wells as quickly as possible.’

Prior to planning additional drilling, Nostra has been focusing on finalising initial acquisition targets, with Lofgran hoping to close on two particular acquisitions by year-end. He tells us the sites both present unique opportunities:

‘Both of the target areas have stacked pay where wells are actively producing from multiple different formations, through both vertical and horizontal wells. One is very active with lots of nearby competition and horizontal wells in multiple different formations. The other has only been drilled vertically to date- we would be the first company to drill horizontally. I am really excited about the potential impact to Nostra Terra from both areas.’

Lofgran says Nostra’s financing and production should give it sufficient funding for the acquisition targets the company is currently pursuing. What’s more, he believes the Permian Basin’s popularity will give the business access to numerous development opportunities as the assets progress:

‘As we take these assets forward, we have a lot of optionality on how we can make money in the area. One of these is a farm-in where we investors will pay for the initial costs and Nostra Terra is carried and operating the asset. Since the area is so prosperous, there are so many companies looking to get exposure and deploy more money.’

The next move

Lofgran has an excellent track record for delivering on his word at Nostra and the firm’s advance this year has been impressive regardless of share price performance. With this in mind, the company’s next growth phase offers a great deal of potential, particularly given the Permian Basin’s unstoppable progress.

Author: Daniel Flynn

Disclosure: The author does not hold positions in any of the stocks mentioned above


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