Nostra Terra Oil and Gas (LSE:NTOG) gave an operational update on Monday including a report on the company’s current hedging arrangements with BP Energy and progress with the Mesquite project.
So far in H2 2018, Nostra’s production from its US assets has averaged 109 bopd net of royalties (194 gross). The company has successfully completed two re-activations of previously shut-in wells in recent months, increasing production at Pine Mills. Nostra is 100% owner and operator of the field and has also recently completed an upgrade of its storage facilities on site to handle greater volumes of oil.
Arguably the most interesting developments surrounding Nostra Terra may be yet to come.
Back in October, Nostra announced it had quadrupled its acreage in the US oil hotbed Permian Basin region. As things stand, production at Nostra’s existing Twin and G6 wells is averaging 53 bopd, and the company notes the wells are exhibiting very modest decline rates as expected with conventional reservoirs found in these leases.
Going Horizontal
The newly acquired Mesquite project is a high confidence prospect with numerous commercial vertical wells surrounding it. Nostra has appointed Trey Resources to create a Field Development Plan (FDP) for Mesquite which will likely include the use of horizontal drilling. Trey is an operator of Permian Basin assets and has specific experience in horizontal drilling across the region. Horizontal wells are more expensive to drill but initial production rates of 200-300 bopd are typically found in the region from such wells. In fact, advances in horizontal drilling have been one of the reasons why the Permian Basin has become so productive.
There is very strong interest in horizontal oil plays and in this week’s update Nostra Terra highlights it has already received ‘four unsolicited expressions of interest from potential industry partners wherein Nostra Terra would be carried by a partner in initial drilling costs’.
Such a deal could offer Nostra the chance to substantially accelerate its operations, but the Board believes that it is important that Trey completes the Field Development Plan ahead of any such discussions.
Hedging
Last September, Nostra announced it had secured a hedging facility with BP Energy. The company details that is has 1,500 barrels a month hedged at $62.75 per barrel until the year-end, and 1,500 barrels a month hedged at $60 until 31 December 2019.
Nostra says it has adopted this hedging strategy in order to ensure core operational costs are covered, but at the same time preserving ‘sufficient flexibility to benefit from the significant production increases the Company anticipates delivering in 2019.’
Matt Lofgran, CEO of Nostra Terra, commented:
“The Permian Basin is the most active oil province in the world. Our strategy over recent years has been to establish a footprint here, with stable oil production. We have achieved this and have built a portfolio of low risk, conventional vertical drilling targets.
As I’ve said repeatedly in recent months, Nostra Terra is now well positioned for its next big step forward. The Company is well-hedged against the recent drop in oil prices and its fundamental financial position remains strong. Operationally we continue to make progress, but we are most excited by the progress made at Mesquite. We look forward to providing a more detailed update on this in the coming weeks.”