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Nostra Terra jumps after revealing plans for maiden horizontal well at Mesquite (NTOG)

Nostra Terra Oil & Gas (LSE:NTOG) enjoyed a 4.3pc lift to 2.45p on Monday after revealing plans to drill its premier horizontal well at the highly-prospective Mesquite asset in the Permian Basin. The company is in advanced discussions regarding a new 160-acre lease opportunity in the Mesquite target area. The target area currently covers more than 30,000 acres, of which the business has secured 2,184 gross acres.

The firm entered into discussions with the current mineral owners following its £1.15m placing in February, having previously identified the potential of the new lease area. It raised this money to strengthen its position in Mesquite, supporting it in the identification of a farm-in partner to deliver its field development plan for the asset.

On Monday, Nostra said the new lease would give it an immediate opportunity to drill a half-mile horizontal well to prove up and increase its overall proven and probable oil reserves at the site. The area is standalone but is near its existing acreage. As such, the company believes it could bring partners into its new lease while retaining full ownership of its existing Mesquite ground. Alongside existing cash resources, the business said this would support the funding the drilling of the proposed well. Encouragingly, it has already received expressions of interest from potential industry partners concerning the new lease.

Once Nostra has concluded discussions with the new lease’s existing owners, it plans to apply for a permit to drill the well. It will then secure a rig and prepare the pad before carrying out drilling and completion operations. Subject to execution of the lease agreement, the organisation expects these activities to complete over the coming weeks and months.

Nostra’s chief executive Matt Lofgran said: ‘This new lease presents an excellent strategic opportunity for Nostra Terra. We see such large potential in the area and plan to increase our footprint, including retaining a larger interest in the Mesquite Asset. We will be able to drill our first horizontal well at Mesquite, with the aim of proving reserves for additional horizontal drilling. We intend do this while retaining full ownership of the acreage we have already secured.

‘Much more importantly, we will also preserve our first mover advantage in the wider Mesquite target area. The first horizontal well could deliver substantial cash flow to the Company whilst significantly strengthening our position in any future farm out discussions for Mesquite.’

Nostra acquired a 100pc position in its existing Mesquite acreage last October. The area contains tight formations, which are typically oil-bearing and of low permeability. This makes 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.

Monday’s strong development is the latest in a string of positive updates at Mesquite. Notably, Nostra has said it has already received numerous unsolicited approaches about the asset from industry partners. To support these discussions, it opened a data room containing an analysis of the asset in January. Such interest reflects how hot an oil province the Permian Basin is and shows how much interest there is in opening up new horizontal plays.

Meanwhile, Nostra revealed last month that City stalwart Miton Group had taken a 10.1pc stake in its share capital as part of its placing. The vote of confidence represented something of a coup for Nostra as it suggested that Miton has bought into the value play on offer across its Permian operations.

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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