Nighthawk's Snow King could rival Arikaree

Nighthawk Energy, the US-focused oil development and production company, said on Thursday it commenced production last week at a new distinct Mississippian oil discovery at the Snow King 13-33 exploration well, four miles south-west of the Arikaree Creek oil-field.

It is a discovery that potentially opens up a full scale development programme similar to the established Arikaree Creek field.

The Snow King 13-33 exploration well, in which Nighthawk has an 80% net revenue interest, was drilled to a depth of 8,400 feet with a principal target of the Mississippian Spergen formation, a highly productive formation bearing strong similarities to the existing production from the Steamboat Hansen block.

It has an initial production rate of 300-400 barrels (bbls) per day. The next development includes permitting of additional wells and laying out of a 3D seismic programme to define the geological setting before initiating a full scale development plan.

The company also announced that the drilling of a Salt Water Disposal (SWP) well at Arikaree Creek had been completed, and funding arrangements revised to facilitate further drilling.

"This is an important addition to the Arikaree Creek infra-structure and when completed and fully permitted will reduce the Company's water handling costs by up to US$3 per barrel of produced water," the company said.

The drilling schedule for the rig is currently being reviewed in light of the new discovery. The aim is for the next phase of drilling at Arikaree Creek to commence in late May 2014 subject to permits being received.

Nighthawk has a number of existing permits at locations other than Arikaree Creek and is currently reviewing the case for drilling one or more of these locations following completion of the SWD.

Following further discussions with the Company's farm-out partner in the Limon area, the initial farm-out well, which was planned for April 2014, is now expected to spud in the May/June period and will target both Pennsylvanian and Mississippian formations.

The firm's average gross oil production in March 2014 was 1,885 bbls per day and was impacted by a planned three day shut-in of the Steamboat Hansen 8-10 well for pressure build-up tests, which it says are routinely carried out on all producing wells to provide data on reservoir performance.

Production in the second half of April will be boosted by the Snow King 13-33 well and by increased volumes from the Pennsylvanian formations in the John Craig 1-2 well which, the statement said, is now producing over 100 bbls per day.

First half April production was impacted by additional pressure build-up tests and a few days of downtime for pump repairs on the Big Sky 5-11 well. Average gross production in the first-quarter of 2014 was 1,748 bbls per day compared with 313 bbls per day in the previous period.

Buoyed by Snow King 13-33, which has potentially opened up a new area for development, the explorer said it intends to maintain the current pace of drilling, and has therefore agreed to delay repayment of its existing loan facilities with Fastighetsaktiebolaget Korpralen and Kattrumpan Fastighets AB by three months.

The lenders are both associated with Johan Claesson, a non-executive director and the company's largest shareholder. However, the Board has agreed that the annual interest rate payable on the loan from FK will increase from 9% to 15% from 1 April 2014.

The company is planning to refinance all existing short-term, non-convertible loans with new longer term borrowing facilities within the next three months.

"We now have two distinct conventional Mississippian discoveries, and this success enhances the prospect of additional discoveries across our extensive acreage position," said chairman Stephen Gutteridge. "We have already identified a number of similar structures for future drilling."

Investor view

On the Interactive Investor discussion boards, investors queried whether the explorer is being totally open with shareholders, and whether information on the Arikaree reserves has been made available.

‘Lupo di Mare’ said: "I made the mistake of not believing a word the management said. It's all too easy to get misled by a company's past behaviour, and ignore the fact that things have changed. Having said that, there's still an awful lot of hope built in to the market cap at £116 million."