Engineered Economics Report Mesquite

RNS Number : 5713N

Nostra Terra Oil & Gas Company PLC

21 January 2019

 

21 January 2019

Nostra Terra Oil and Gas Company plc

("Nostra Terra" or the "Company")

Engineered Economics Report Mesquite

Nostra Terra (AIM:NTOG), the oil and gas exploration and production company with a portfolio of assets in the USA and Egypt, is pleased to announce the initial results of the engineered economics report (the "Report") for the Mesquite Asset in the Permian Basin ("Mesquite").

Highlights

·    Based on the engineered economics for the initial 1,384 net acres at Mesquite, Nostra Terra believes the field can generate

o 2,400,000 barrels of recoverable oil (Estimated Ultimate Recovery, "EUR")

o US$21,600,000 NPV10 valuation at current strip pricing

§ US$28,600,000 NPV10 valuation at US$60 oil

o Pro forma value per acre of US$15,625 at current strip pricing

§ Pro forma value per acre of US$20,669 at US$60 oil

·    Per Well Economics ("PWE") based on 160-acre spacing

o 5,000ft (1,524m) lateral well

o 300,000 barrels of oil EUR

o US$2.5million NPV10 per well at current strip pricing

§ US$3.3million NPV10 per well at US$60 oil

o Internal Rate of Return ("IRR") of 34% at current strip pricing

§ IRR of 46% at US$60 oil

o Drill and completion cost estimated at US$2.9mm

o Estimated initial flow rate 265 barrels of oil production per day ("bopd")

o 20 year well life

o 100,000 barrels produced in first 3 years per well

·    Future acreage growth potential

o Larger area identified for further expansion

·    Field Development Plan based on initial assessment enables commencement of farm-in process, expected to commence shortly [can't be complete if its an initial assessment?]

Summary of key findings

Nostra Terra commissioned Trey Resources, Inc ("Trey"), a specialist operator of Permian Basin assets with specific experience in horizontal drilling across the region, to assess the economic potential of the initial 1,384 net acres Nostra Terra acquired at Mesquite (the "Initial Acreage") as announced on 22 October 2018. The Report does not represent audited resources but based on Trey's analysis, Nostra Terra has initially concluded that the Initial Acreage contains 2,400,000 barrels of recoverable oil.

Using Trey's current and mid-case estimates, Nostra Terra has assigned a US$21,600,000 NPV10 valuation to the Initial Acreage at current strip pricing and a US$28,600,000 NPV10 valuation at US$60 oil. This equates to a pro forma value per acre of US$15,625 at current strip pricing and US$20,669 per acre at US$60 oil.

Lateral well design

In preparing the Report, Trey has assumed the utilization of horizontal (lateral) wells at the Initial Acreage to create a Per Well Economic ("PWE") model.

Trey's well design is based on a single well on 160-acre spacing. Each lateral well would be 5,000ft (1,524m) long with an Estimated Ultimate Recover ("EUR") of 300,000 barrels of oil. Initial production estimated at 265 bopd. The economic life of each well is estimated to be 20 years, with 100,000 barrels of oil produced in the first three years of each well.

Trey built its PWE model using a low, medium and high price deck. It also included an assessment of the Initial Acreage at current strip pricing.

Using Trey's mid-case estimates at current strip pricing and US$60 oil, each well's value would be between US$2.5million and US$3.3million NPV10  and have  an IRR of between 34% and 46%. The NPV10 and IRR estimates are calculated on the basis of each well costing US$2.9million to drill and complete.

A full table of Trey's PWE estimates can be viewed below:

($ in millions)	Oil Price ($ / Bbl)
	$45	Current Strip	$60	$75
IRR
EUR 10% Below Estimate	19%	28%	37%	63%
Estimated EUR at 300 MBbl	24%	34%	46%	77%
EUR 10% Above Estimate	29%	41%	55%	92%
NPV10
EUR 10% Below Estimate	$1.0	$1.9	$2.6	$4.3
Estimated EUR at 300 MBbl	$1.5	$2.5	$3.3	$5.1
EUR 10% Above Estimate	$2.0	$3.1	$4.0	$6.0

Preparation of the Report

Over the last three months Trey has built a ground-up volumetric model of the Initial Acreage, utilising petrophysical analysis and historic well results from vertical production in the local area. Trey has used this model to create a "type curve" (ie best representation) and economics for 5,000ft (1,524m) lateral (horizontal) wells at Mesquite. Nostra Terra will be the first operator to drill a horizontal well at Mesquite.

In its Report, Trey notes that Mesquite has similarities to another legacy Permian Basin vertical play, of which Trey has experience. Trey was successful in deploying horizontal drilling and completion technologies at this project, which targeted the analogous formation and delivered an IRR to investors of 54%.

In preparing its analysis of the Initial Acreage, Trey created a 15 square mile volumetric map, which covers the area surrounding Mesquite. Trey conducted petrophysical analysis of this area in order to create effective porosity, water saturation and net maps to determine volumetrics (i.e. the quantity and extractability of oil in place). It also reviewed the historical production results of c.100 vertical wells in proximity to Mesquite.

Potential for acreage growth at Mesquite

Following the announcement on 17 January 2019, the Company has an option over a further 600 acres which would increase the net acres controlled by Nostra Terra to1,984 acres. As part of its work preparing the Report, Trey has begun an initial review of the status of leases in the area surrounding Mesquite. This is ahead of possible future incremental leasing by Nostra Terra. Trey has made initial recommendations to the Company's Board in respect of its leasing strategy and which areas to focus on based on the volumetric map.

Where possible, Nostra Terra's Board intends to capitalize on its first mover advantage at Mesquite and add to the Company's acreage position.

Farm in discussions

Now that the Field Development Plan is complete, Nostra Terra is better positioned to engage in discussions with potential industry partners about the development of the Mesquite Asset. The Company's Board is highly encouraged by the work Trey has completed. Having already received 4 unsolicited approaches from potential industry partners and secured additional acreage (17 January 2019), the Board is confident that Mesquite is an attractive farm-in candidate.

The NPV10 and IRR models highlight the investment case for Mesquite and it is the Board's intention to start the farm-in process shortly.

The Company will provide further updates on progress at Mesquite in due course.

Matt Lofgran, Chief Executive Officer of Nostra Terra, commented:

"We're very excited to have such strong confirmation of the potential of the Mesquite Asset. The work that Trey has done on our behalf has been thorough and detailed. The volumetric map in particular could provide Nostra Terra with a crucial advantage as we develop this project.

The Report we received from Trey has helped us build a compelling investment case for Mesquite. We are especially encouraged by the NPV estimates and potential IRRs. The base case is built on conservative numbers and demonstrates a clear path to substantial value for a Company of our size.

Over the last two and a half years we have worked extremely hard to reposition Nostra Terra. Our focus was initially on building a foundation of producing assets that make money in a lower oil price environment. As we have said all along, we did this so that we could then introduce much bigger projects to the Company.

The Mesquite Asset is a perfect example of what we hoped to bring to Nostra Terra, where a single well has the ability to triple our current production, without the associated exploration risk. Now that we have the Field Development Plan based on initial assessment we will open discussions with potential partners, with a view to realizing considerable value at Mesquite."

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

Competent Person Disclosure

John Stafford, a Director at Nostra Terra with over 35 years relevant experience in the oil industry, has reviewed this announcement for the purposes of the current Guidance Note for Mining, Oil and Gas Companies issued by the London Stock Exchange in June 2009. Mr. Stafford is a Fellow of the Geological Society and a member of the Petroleum Exploration Society of Great Britain.

For further information, visit www.ntog.co.uk or contact:

Nostra Terra Oil and Gas Company plc Matt Lofgran, CEO	Tel:	[phone]
Strand Hanson Limited (Nominated & Financial Adviser and Joint Broker) Rory Murphy / Ritchie Balmer / Jack Botros	Tel:	[phone]
Smaller Company Capital Limited (Joint Broker) Rupert Williams / Jeremy Woodgate	Tel:	[phone]

 

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