Nighthawk Energy (LON:HAWK) shares soared around 25 per cent in early deals this morning as it said it was pleased with early results from the Jolly Ranch work-over programme.

Gaining 0.83p each shares in the Colorado based oil firm were trading at 4p.

Two work-over rigs have been in operation at the Jolly Ranch property for the past month and eleven wells have been reworked. 

Also Nighthawk says a significant amount of geo-science work has been completed and this has provided substantial new sub-surface information, which indicates new areas with production potential.

There is increased potential for multi-zone production without the need of hydraulic fracturing (fracking), Nighthawk said. Drilling plans are now being accelerated for new wells, with new locations being identified and permitting work starting.

"We are pleased with the early results from the Jolly Ranch work-over program and we expect production to increase through the second quarter as wells that were unavoidably off-line in first quarter due to the work-overs are brought back online,” said chairman  Stephen Gutteridge.

“Whilst remedial work on equipment and infrastructure will take a little longer than expected, there are encouraging signs that our acreage gives access to a wider range of potential oil producing zones than expected.  

“With increased activity and interest from the larger companies operating around us, we are pressing ahead rapidly with our existing program and accelerating our timetable for new drilling."

Nighthawk explains that the work-overs involve first down-hole work, to prepare near term production were possible, while also completing remedial work ‘topside’ to ensure that production is properly treated, controlled, stored and measured.

The down-hole work comprises well-bore cleaning, cementing, casing repair, re-perforations, and new perforations.

Nighthawk says the ‘topside’ work has proved to be more extensive than it has initially expected. It says pumps and engines need repairing and in some cases replacing. Meanwhile heater-treaters are in a generally poor condition and they are being cleaned or replaced if necessary.

New tanks are also being brought in and existing ones are being cleaned and tested.

Some of the lead times are now being extended because of the extra work, although it says this will be mitigated by the deployment of some existing equipment, which is in good condition, to the wells with greatest potential.

As the work over programme was underway total production for the first quarter dropped to just 3,036 barrels of oil. But Nighthawk says the second quarter will provide a better guide to the level and consistency of production from the existing wells following work-over.

Westhouse analyst Andrew Matharu says the work-over has so far provided a better than expected result.

“It is possible that the majority of these wells will be producible in the near-term. Importantly, the company notes that production will be achievable without the use of hydraulic fracturing thereby saving time and money,” he said in a note to clients.

The analyst today repeated a ‘strong buy’ recommendation, which targets 10.7p a share.

“As the company continues to provide evidence to investors that its work programme is leading to a de-risking of the Jolly Ranch Project, the market discount that is applied to the asset value will be narrowed,” he said in a note to clients.

Nighthawk said it has completed a significant amount of geo-science work. And this has provided substantial new sub-surface information. This work includes the acquisition of third-party data on nearby assets.

The company says it is very encouraged by the initial findings. It indicates that there are both shallower and deeper formations, in addition to the Cherokee and Atoka formations, that show significant potential for production. 

It specifically refers to the Marmaton formation, which has a typical depth of 6,200 - 6,500 feet, which is a proven oil producer in nearby leases.

In his note Matharu also notes the findings of the geo-science work. “Despite the positive news with respect to the potential of the Marmaton formation, management still insist that the Jolly Ranch asset is a Cherokee shale oil play and new wells to be drilled in Q3 2012 will demonstrate this.” 

Two work-over rigs have been in operation at the Jolly Ranch property in Colorado for the past month and eleven wells have been reworked. Work continues so that more data can be gathered and production can be increased. 

The company says early results show increased potential for multi-zone production without the need of hydraulic fracturing (fracking).

Drilling plans are now being accelerated for new wells. As such new well locations are being identified and permitting work is starting.

"We are pleased with the early results from the Jolly Ranch work-over program and we expect production to increase through the second quarter as wells that were unavoidably off-line in first quarter due to the work-overs are brought back online,” said chairman  Stephen Gutteridge.

“Whilst remedial work on equipment and infrastructure will take a little longer than expected, there are encouraging signs that our acreage gives access to a wider range of potential oil producing zones than expected.  

“With increased activity and interest from the larger companies operating around us, we are pressing ahead rapidly with our existing program and accelerating our timetable for new drilling."

Nighthawk explains that the work-overs involve first down-hole work, to prepare near term production were possible, while also completing remedial work ‘topside’ to ensure that production is properly treated, controlled, stored and measured.

The down-hole work comprises well-bore cleaning, cementing, casing repair, re-perforations, and new perforations.

Nighthawk says the ‘topside’ work has proved to be more extensive than it has initially expected. It says pumps and engines need repairing and in some cases replacing. Meanwhile heater-treaters are in a generally poor condition and they are being cleaned or replaced if necessary.

New tanks are also being brought in and existing ones are being cleaned and tested.

Some of the lead times are now being extended because of the extra work, although it says this will be mitigated by the deployment of some existing equipment, which is in good condition, to the wells with greatest potential.

As the work over programme was underway total production for the first quarter dropped to just 3,036 barrels of oil. But Nighthawk says the second quarter will provide a better guide to the level and consistency of production from the existing wells following work-over.

And the third quarter should show the impact that new drilling can make.

Additionally Nighthawk said that a significant amount of geo-science work has been completed in the past two months. And this has provided substantial new sub-surface information.

It also said that third-party well data and new seismic data have been purchased and processed.

“The Board are very encouraged by the initial results from this work, which indicate that in addition to the Cherokee and Atoka formations, there are both shallower and deeper formations that show significant potential for production,” Nighthawk said.

“In particular the Marmaton formation, at typical depths of around 6,200 - 6,500 feet, is a proven oil producer on neighbouring leases.”

In recent weeks Nighthawk has raised over £18 million and struck a deal to take control of the flagship Jolly Ranch shale project in Colorado. 

It has agreed to buy an additional 25 per cent stake in the project, taking its stake up to 75 per cent.

At the same time, chief executive Tim Heeley is handing over the reins to the newly appointed management team, led by executive chairman Steve Gutteridge, before joining the operational and commercial team on the ground in Denver.

“These key elements of corporate activity should act as a “collective” catalyst to revitalise investor interest in the company and, crucially, enable Nighthawk to demonstrate its subsurface strategy and move forward to sustainable production,” said Andrew Matharu, head of oil & gas at Westhouse, said in a note to clients.

With Nighthawk now in control as the operator of Jolly Ranch, Matharu says the firm will be able to implement its own reservoir exploitation strategy, and deploy its own operations team.

“We believe that the acquisition of Jolly Ranch, and its associated operatorship, will enable management to implement a reservoir development strategy where they will be able to extract greater shareholder value from the asset than the previous operator.”

Westhouse says Nighthawk can improve the Jolly Ranch operation in a number of ways.

Specifically Matharu reckons improvements can be made in well design and completion techniques deployed, drilling operations and analysis. Furthermore he says that horizontal drilling and side-track wells are also now an option for Nighthawk.

“A significant work programme is planned by the company to commence in the second quarter of 2012, and will include the workovers of existing wells and the drilling of up to five new wells,” Matharu said.

He added: “Development of the full project will necessitate the drilling of a large number of wells.

“Nighthawk, as the new operator, will need to devise a development plan for the field, involving decisions on well design and well spacing. 

“We understand that the company has also yet to decide its financial model for developing the acreage. This may involve the sale of part or all of the acreage to a larger company.”

Westhouse rates the stock as a ‘buy’ with a 10.7p price target, which is more than four times the current price of 2.6p.

It has placed 155.7 million shares with institutions at 2.5 pence each raising almost £2.9 million gross, or £2.75 million net of expenses.

The stock was sold at a modest discount to last night’s 2.7 pence a share closing price, and the proceeds will be used to fund the company’s increased participation in the Jolly Ranch shale oil project.

Directors including chairman Steve Gutteridge and chief executive Tim Heeley participated in the cash call.

Gutteridge said: “The strong support we have received for the placing is a further vote of confidence in Nighthawk as a renewed company with substantial potential as a sizeable US shale oil player.  

“Combined with the support of our two largest shareholders through the convertible loans, Nighthawk is now well-funded to press ahead in 2012 as operator, with a focused development and drilling program at Jolly Ranch."

The company announced last month it plans to acquire a further 25 per cent of Jolly Ranch from partner Running Foxes for US$12.5 million.

When complete, the deal will give Nighthawk a 75 per cent stake and operatorship of the project.

A total of £5.5 million (US$8.5 million) will be paid in cash, while Running Foxes will receive £2.6 million-worth (US$4 million) of shares.

In total Nighthawk is raising £18.15 million which will fund the acquisition as well as next year’s work programme. 

This is being financed by the issue of debt and equity.

In the same announcement on December 28 it was also revealed that Running Foxes has entered exclusive discussions to sell its remaining 25 per cent stake in Jolly Ranch to a “third party”.

Nighthawk’s operatorship of the project will allow it to control the speed and method of development at Jolly Ranch going forward.  

It says a number of lessons have been learnt from the progress to date “which will be applied in seeking to improve the performance of the asset from existing and new well bores”.  

By controlling the development, the company said it will be able to deliver greater value to shareholders by focusing on a number of key “development factors”. 

These include well design and drilling operations, logging and well completion design and the increased use of horizontal wells.  

Once the deal is completed, Tim Heeley will step down as chief executive and as a director.

However he will work with the existing Denver team to “set up and manage the operational and commercial structure and execution required to deliver sustainable, profitable production from the Jolly Ranch Project”.

The terms of deal outlined today value Jolly Ranch at less than the valuation in last full-year accounts.

So it is likely the company will impair the value of the project when it publishes the interim results.

Edison noted that Nighthawk’s share price has continued to trend down during 2011 and is now, unjustifiably, trading close to its all-time low.

“The apparent market scepticism concerning the viability of the Jolly Ranch shale oil project ignores the significant progress made in de-risking the potential alluded to in recent Schlumberger and Gaffney Cline studies, and the intense interest in US shale oil plays,” said the boutique research house.

“Major development work is still required at Jolly Ranch but the project could ultimately evolve as a highly significant petroleum source in the US mid-continent.”

A Gaffney Cline study earlier this year revealed “a predictably modest” reserve position for Jolly Ranch of 24,000 and 55,000 barrels on a 1P and 2P basis respectively, according to Edison. “However, the estimates were based on a decline analysis for only two wells targeting two intervals in the Cherokee formation,” the research firm pointed out.

“Pro-rating the estimated ultimate recovery of 64,000 barrels for the Craig 16-32 well across the Jolly Ranch acreage would yield 2P reserves of a highly-significant 656 million barrels gross.”

Nighthawk is planning a new Jolly Ranch drilling programme and Edison believes that timing will depend on rig availability and completion of the workover programme. “Prior indications suggested four wells targeting the Atoka/Cherokee shales and three, the shallower Niobrara,” it said.

Edison is upbeat regarding Nighthawk’s valuation. While pointing out that the company’s recent share price performance reflects “either great scepticism concerning the viability of the Jolly Ranch project or alternatively an unwillingness to endure a long development period with an inevitably uncertain conclusion” it believes a conservative assumption that only 25 per cent of the Jolly Ranch acreage proves viable for development, a revised valuation of the company would be “US$650 million net or 107 pence per share”. 

Shares in Nighthawk were down 1.8 per cent at 5.05 pence each at lunchtime today.

Shale Oil specialist Nighthawk Energy (LON:HAWK, OTCQX:NHEGY) has recruited Charles ‘Chuck’ Wilson as chief operating officer, it was revealed today.

Wilson, who joins next month, is the second major appointment as chief executive Tim Heeley looks to strengthen the board.

Former City banker Richard Swindells joined Nighthawk last month as finance director.

Wilson brings with him almost 30 years of drilling and completions experience, which will be vital as Nighthawk carries out its completions and recompletions programme on the Jolly Ranch project in Colorado.

His last post was vice president of operations and engineering at Gasco Energy, and before that he has held roles at Maxus Energy and Forest Oil Corporation.

Chief executive Heeley said: "We are delighted that Chuck has joined Nighthawk at an exciting juncture in our redevelopment. 

"Chuck brings extensive experience of operating in the Denver basin plus a proven track record in optimising production and driving cost savings in drilling and completion programs. 

“His particular expertise of designing and implementing technical solutions for completion operations will be of real benefit as the company focuses on becoming more engaged in the operational aspects of developing the Jolly Ranch shale project."

It said three completions and re-completions have taken place since January on wells Craig 8-1, Williams 10-27 and Craig 4-33.

Craig 8-1 has been acidised, but not fracture stimulated. It targeted new perforations in the Lower Atoka and existing perforations in the Cherokee. It is producing in the range of 10 to 30 barrels a day.

Williams, meanwhile, was acidised and then fracced in the Lower Atoka at the end of last month. This means it is currently flowing back fluid, though the first few hundred barrels of this fluid contained around 50 per cent oil.  

Finally, Craig 4-33 was acidised in zones in the Cherokee and Upper and Lower Atoka. It is currently producing between 20 and 30 barrels of oil a day gross.

“These initial results from the first three wells are encouraging and show that recompleted wells are capable of higher levels of production and that further progress is being made in unlocking value at Jolly Ranch,” the company said in a statement. 

“In particular, it shows that the key to demonstrating this value is by continuing to refine the completion and fraccing methodology.  

“As such, the focus of the current work programme remains to show that production from the current wells can be improved, while planned future drilling will add to the overall knowledge base and production portfolio.”

The next phase of drilling is expected to take place in two months once a drill rig is available.

The programme will comprise four development wells in the core area around the Craig Ranch field - all focusing on the Pennsylvanian Atoka and Cherokee shales.

Up to a further three wells will be drilled in the Middle Mist area, to test the 'J' sands and the Cretaceous-aged Niobrara shale formation, based on the results of 3D seismic.  

These formations are currently the targets of numerous wells by other operators in the northern part of the Denver Basin, another US shale oil play, the company said.

The "J" sands and Niobrara formations lie at shallower target depths of around 5,000 feet, which should result in a considerably lower total cost than the deeper Cherokee and Atoka wells at Jolly Ranch.  

Each Niobrara well is currently estimated to cost around US$400,000.  The deeper wells are anticipated to cost around US$1.5 million, excluding any fraccing and acidisation.

Nighthawk’s Craig 16-32 well, meanwhile, has produced 11,700 barrels of oil since mid-June with minimal water. A change of pump has raised daily production from 34 to 40 barrels a day to 90 barrels with the rate maintained at 85 barrels a day. 

Nighthawk chief executive Tim Heeley said: "We are pleased that we continue to see signs that the potential of the Jolly Ranch project is being unlocked.  

“Increased production, like that from the recompleted wells, is always good news and activity on surrounding acreage continues to give us confidence in the project.  

“The key strategic objective remains to continue to refine the applicability and the repeatability of the completion operations.

"Further drilling will not only enhance our knowledge of the play but will also provide a larger well portfolio from which to produce."