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Both technicals and fundamentals point to significant upside potential for Nostra Terra (NTOG)

Despite significant recent developments, the share price of Nostra Terra Oil and Gas (LSE:NTOG) is still languishing below 2.5p. In fact, today’s mid-price of 2.3p equates to a Market Cap of just £4.5m. Clearly, the current valuation does not reflect the $21.6m Net Present Value (NPV10) attributed to the Mesquite asset in the Engineered Economics Report independently produced by Trey Resources.

While Nostra’s progress appears to have gone largely unnoticed by the wider market, Institutional investor Miton Group quietly snapped up 10.14pc of the company at 2.4p per share in late February.

Nostra is heavily focussed on the Permian Basin in the US, where it is looking to ramp up operations with horizontal drilling at Mesquite. Drilling horizontal (or lateral) wells is more expensive than vertical drilling – coming in at around $2.9m per well – but the rewards are multiplied, with lateral wells giving access to significantly larger pay. Trey Resources, who have extensive expertise in horizontal drilling in the region, estimate each horizontal well drilled at Mesquite will generate an initial flow rate of around 265 barrels of oil per day (bopd) and could have a 20-year well life.

Excitement surrounding the Permian Basin has been hotting up recently with a number of huge investments from the likes of BP and Chevron. During what has been an exceptionally difficult time for the sector, Nostra has been quietly positioning itself to take advantage of a recovery in the oil price and a return of some positive sentiment to the industry.

Credible support for the company is not in short supply.

Investment from high profile asset managers, Miton, is a big thumbs-up for Nostra which had already secured a BP hedging facility and a $5m senior lending facility with Washington Federal Bank.

So, what is the market waiting for?

Well, Nostra is aiming to secure that final piece of the jigsaw, a farm-in partner or project level finance to enable it to deliver the Mesquite Field Development Plan. With 8 suitable well locations already identified on the field, it’s clear there is massive upside potential once the ball is rolling at Mesquite.

A look at the Nostra share price chart shows just how coiled up this spring has become. A Falling Wedge pattern has been developing since the beginning of 2018 and recently price action made a clear fifth touch of the pattern on the weekly chart. To be considered valid, Falling Wedge patterns require five points of contact with price action.

It appears a breakout could be on the cards soon with space for the share price to run now very limited within the wedge. Additionally, I would argue technical support around 2p is likely to hold with such strong fundamental reasons also supporting the stock. From a technical point of view, an initial target might be 5p on breakout, however, upside could be substantially more from a fundamental perspective, if and when Nostra announces the game is on at Mesquite.

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.

  • Stuart Langelaan currently holds a position or positions in the stock(s) and/or financial instrument(s) mentioned in the piece.
  • Stuart Langelaan 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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