Nighthawk Energy (AIM: HAWK) said that the operator of its 50% owned Jolly Ranch oil project in Colorado, Running Foxes Petroleum Inc, expects production to rise from 150 bopd (barrels of oil per day) to an initial target of 1,000 bopd during 2010.
Running Foxes has so far completed 13 vertical development wells targeting the Cherokee and Atoka shales, three shallower wells and two salt disposal wells, also having acquired an existing production well completed in an Atoka sandstone reservoir form the State of Colorado.
Re-evaluation of the previous 3D seismic surveys has indicated a number of conventional targets, basement faulting and areas of potential sweet spots. Three recently completed 3D seismic surveys are presently being interpreted.
Schlumberger has been engaged to complete an extended modelling and reservoir simulation at Jolly Ranch to allow development of production and recovery profiles, with the results to be used as the basis of an independent reserves assessment.
“We are focused on increasing production levels, in conjunction with proving up the extent of the asset in order to generate maximum value. We believe that Jolly Ranch can be established as a high value shale play similar to prolific shale projects such as the Bakken, Barnet and others throughout the US Mid-continent. These shale plays can command exceptional exit prices once producibility and economic parameters are exhibited,” said managing director of Nighthawk David Bramhill.
Investment bank and broker Daniel Stewart & Company (DS&C) was encouraged by the update, saying that the report along with the level of detail should be welcomed by the market and that the “learning phase” of the development of the project was close to completion.
“Nighthawk’s work on increasing production, further understanding and proving the resource potential and other companies leasing land are all encouraging and should support the share price,” said DS&C in a note.
The 'buy' recommendation and the target price of 45 pence were retained.
In July 2009 Schlumberger estimated the P50, or most likely, oil in place in the three primary formations across approximately two-thirds of the acreage at Jolly Ranch at 1.462 billion barrels gross. It also stated that there is reasonable certainty of reservoir and source rock continuity over the project area and surrounding acreage.
The debt-free Nighthawk currently has US$18.3 million in cash.
Broker Westhouse also welcomed the update, saying it confirmed its previous assessment that Jolly Ranch was a “world class asset”. It reiterated its estimate that, based on the Schlumberger study of oil in place and a 20% recovery rate, the potential recoverable reserves from the acreage net to Nighthawk are approximately 220 million barrels, or the equivalent of finding a large North Sea or West African oilfield.
The broker stated that Nighthawk was undervalued, retaining its 'buy' recommendation for the stock.
Disclosure: The author holds no positions in the company