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Miton Group backs Nostra Terra in major vote of confidence for growing Permian Basin player (NTOG)

Nostra Terra Oil & Gas (LSE:NTOG) rose to 2.7p on Thursday after announcing a critical vote of confidence from a prominent institutional investor. In a TR-1 released late afternoon, the business revealed that well-known small cap-focused asset manager Miton Group had taken a 10.1pc stake in its share capital.

Miton purchased the position in Nostra’s £1.15m raising at 2.4p a share earlier this week. At the time, Nostra did not mention Miton by name, but said its raise had been conducted with ‘new institutional and other investors’.

The placing proceeds will allow Nostra to strengthen its position at Mesquite, which it acquired last October. The asset covers 2,184 acres in Texas’s Permian Basin and contains tight formations. These are typically oil bearing and of low permeability, making them ideal targets for horizontal drilling. The structures have delivered in other areas of the Permian, with comparable horizontal drilling producing at rates of 200-300bopd.

The first iteration of Nostra’s field development plan for Mesquite, which was carried out by Trey Resources, was released in January.  It gave the asset a $21.6m NPV10 valuation and a 34pc internal rate of return (IRR) at $53/bbl oil once fully developed.  Meanwhile, the area has an estimated NPV10 of $28.6m and an IRR of 46pc at $60/bbl oil.  Both NPV10s dwarf the business’s post-admission market cap of £5m.

The fact that the raise was put together so quickly and Miton was willing to take such a considerable position at no discount represents a massive coup for Nostra. Indeed, it indicates that the City stalwart has understood the value play on offer by the firm through Mesquite and its broader Permian acreage.

Tellingly, it follows backing from Washington Federal Bank and BP Energy group, who have respectively provided lending and hedging facilities on favourable terms over the past two years. Despite the market’s refusal to bite so far, this institutional support for Nostra is beginning to seem increasingly justified.

Indeed, in February, Nostra revealed that its acquisition of Mesquite had led to a more than threefold increase in its reserves. The business reported proved and probable oil reserves of 2,429,660 barrels across its portfolio, which also includes the Pine Mills field in East Texas. This represented a 276pc jump on the 646,280 barrels reported last year.

According to Nostra, this year’s reserves translate into total proved and probable future net income of $58.65m. The assets are also believed to have a more conservative NPV(9) of $23.93m (the figure submitted to the company’s bank, Washington Federal).  Digging deeper, net proved reserves rose to 764,030 barrels, which the firm put down to drilling and development in the Permian Basin over H1 2018. Meanwhile, its probable reserves jumped to 1,665,630bbls, thanks entirely to the purchase of Mesquite.

Miton’s support also strengthens Nostra’s hand considerably as it continues efforts to identify and secure a farm-in partner to deliver its field development plan for Mesquite. The company says it has already received four unsolicited approaches about Mesquite from industry partners opened a data room containing an analysis of the asset in January. This reflects how hot an oil province the Permian Basin is and shows how much interest there is in opening up new horizontal plays.

All-in-all, Nostra expects to be able to drill eight horizontal wells at Mesquite. With the backing of Miton and $1.15m in its pocket, Nostra is now likely to be able to keep hold of a very considerable portion of any prospective production in the event of farm-in.

We recently caught up with Nostra Terra CEO Matt Lofgran in a podcast to find out more about the benefits and processes of horizontal drilling. Click here to listen to the interview.

Valuethemarkets.com and Dynamic Investor Relations Ltd are not responsible for the content or accuracy of this article.  News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance.

  • Daniel Flynn does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.
  • Daniel Flynn has not been paid to produce this piece by the company or companies mentioned above.
  • Dynamic Investor Relations Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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