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Nostra Terra quadruples Permian Basin position with Mesquite acquisition (NTOG)

Nostra Terra Oil & Gas (LSE:NTOG) edged up to 3.9p this morning after quadrupling its position in Texas’s prospective Permian Basin.

The firm has purchased the 1,384 net acre Mesquite prospect, where it expects to be able to drill eight horizontal wells. It will target initial production of 200-300bopd from each horizontal well at the site, based on analogous regional drilling.

Nostra also expects the site to host vertical well potential, with nearby operators recently drilling wells with spacing of just 20 acres. On this basis, it believes Mesquite could host a minimum of 35 potential vertical well locations at 40-acre spacing and a maximum of 70 with 20-acre spacing.

Nostra will acquire Mesquite from an oil and gas business Tall City Exploration III for an initial cash consideration of $150,000. Although Tall City will keep a 12.5pc carried interest in the first horizontal well drilled, Nostra will be the prospect’s 100pc-owner and operator following the purchase.

Nostra now plans to engage a specialist firm to create a comprehensive field development plan for the prospect. It has also identified numerous addition acquisition targets in the Permian Basin that could be potentially suitable for horizontal drilling and allow it to increase its acreage further. However, despite today’s update opening up the potential for a great deal of future newsflow – whether through developments at Mesquite or additional acquisitions – Nostra’s shares were up just 0.6pc as at writing.

In today’s update, Nostra said it believes Mesquite offer much more significant development potential through horizontal rather than vertical drilling, thanks to the low permeability of its target formations. The firm said horizontal drilling at geologically similar areas of the Permian has delivered successful initial oil production rates. Horizontal drilling involves drilling a well parallel to an oil-bearing formation and, according to the US Energy Information Administration, has been responsible for driving Permian Basin production gains over recent years.

Chief executive Matt Lofgran, added that Nostra identified Mesquite as a potential acquisition target in early 2017, but has only been able to secure it thanks to recent developments:

‘We are incredibly excited to have made such a substantial acquisition, quadrupling our Permian footprint and, much more importantly, now having the opportunity to drill horizontally. Horizontal drilling has been the primary driver in delivering the substantial gains in production and reserves seen across the Permian Basin in recent years. For a company of our size, this is a huge opportunity, which we are now well positioned to take advantage of. Having successfully grown our cash flow on steady gains in production, it is now time for Nostra Terra to take its next leap forward.’

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

Earlier this month, Lofgran told us that Nostra hopes to step up its operations in the Permian 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 told us 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.’

Author: Daniel Flynn

Disclosure: The author does not hold a position in any of the companies mentioned above

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