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Nighthawk Energy pushing ahead with Revere oil and gas project, expects production increase soon

US focused hydrocarbon production and development company Nighthawk Energy PLC (AIM: HAWK) said recent activity on the Revere oil and gas project has been intense, and production is expected to increase to 250 barrels of oil equivalent per day from the current 150 when a pipeline extension comes on-stream in the fourth quarter 2009.

Revere is a waterflood project covering in excess of 40,000 acres and is the product of the consolidation of the Devon Oilfield of which Nighthawk controls 80 percent, and the 50 percent-controlled Buchanan, Worden and Xenia  projects, all located on or around the State border of Kansas and Missouri. Operator Running Foxes Petroleum Inc holds the respective remaining interests.

Revere is a relatively low cost, high upside development project.  The shallow reservoir depths range from 350 to  800 feet and the Bartlesville and McClouth are the primary production formations.  Nighthawk expects this core project to become a significant contributor in terms of reserves, production and cash flow.

An independent report by Oilfield Production Consultants Ltd puts the Stock Tank Oil Originally in Place (SROOIP) estimate at the Devon, Buchanan and Worden sections of Revere at 210.51 million barrels gross, with the figure expected to rise significantly on further development of the outlying acreage.  An evaluation by OPC of Xenia is ongoing.

There are currently 140 wells on primary production, 65 wells awaiting completion, 38 water injection wells at various stages of injection and one active salt water disposal well. Up to 200 new wells are planned to be drilled, including 99 currently permitted, all of which will be funded from existing cash resources.  With a 40,000 acre project area, there are potentially 4,000 well sites on 10 acre spacing, Nighthawk said.

A new reservoir has been discovered within the Devon area.  Three new wells on primary production have been producing at an aggregate rate of 25-30 barrels of oil per day and seven additional wells will be drilled and added to production within this area.

Construction of a 12 kilometre gas pipeline extension at Xenia, with a capacity of 5 million cubic feet of gas per day, is nearing completion and production and gas sales are expected to commence during Q4 2009. Initial production is anticipated to be approximately 500,000 cubic feet per day, plus associated oil.

Significant infrastructure is already in place throughout the current Revere development area and is being expanded as the drilling programme continues. Water injection plants have been installed at numerous locations, several oil storage sites constructed and surface flowlines put in place to transport product.

The economics of Revere are robust, the company said.  OPC reported that oil production rates of 5-20 barrels per day could be expected from each production well following the impact of waterflooding.

“With a low drilling cost to completion of approximately US$50,000 and assuming a US$50 oil price, a well producing even at the lower end of the expected range would cover the capital cost in approximately seven months,” Nighthawk said.

Managing director David Bramhill commented: “Revere remains a high potential and high reward core project for Nighthawk. Development activity is intense.  We have a major expansion programme planned for at least the next 12 months and look forward to reporting further progress.”

Hanson Westhouse issued a note on Nighthawk following the company statement, saying it is encouraged by today’s update.
 
"We believe this represents more evidence of the ongoing development of the group’s high quality assets following last week’s horizontal drilling update at Jolly Ranch. Specifically, the Revere project, in our view, offers outstanding resource and production upside potential. The fact that it is also a low cost, low risk project  - reservoir depths are only 350 to 800 feet - only adds to its appeal," the broker said.
 
Its valuation of 225p per fully diluted share post the recent share placing, represents a significant discount to the current price. As such, Hanson Westhouse retains its 'buy' recommendation.

Nighthawk Energy in July 2009 raised £22.4 million before expenses through a placing for the development programme currently underway.  Apart from the above mentioned drilling and building of construction facilities at Revere, the programme includes the drilling of 20 wells and the building of production facilities at Jolly Ranch in Colorado, of which Nighthawk controls 50 percent and operator Running Foxes Petroleum Inc the remainder.

Part of the money will be used to fund other projects and corporate overheads.