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.”

It says it has now completed a number of operations on seven Jolly Ranch wells. 

However, it says that following a period of very limited investment under the previous operator, more work is required before the wells can be re-completed.

As a result, Nighthawk increased this part of the work budget to US$600,000 from US$300,000. The additional cash will be spent to complete a significant sand-fill in wells, to repair casing and tubing and the re-balancing and repair of pump units. Additional investment will be made on ‘topside’ facilities.

"Taking on the operatorship of a project that had seen little investment over the past year was always going to be challenging, but I am delighted that the Nighthawk Denver team have moved quickly to sort out problems, accumulate additional data, and get to well recompletion earlier than expected,” said chairman Stephen Gutteridge.

“Operational success is the criteria by which we expect to be measured and we will now be updating regularly on our progress."

The Jolly Ranch work-over programme comprises three stages – preparation, data gathering and recompletion.

Nighthawk says the data gathering process has been very successful.

Aside from collecting data from its own wells, Nighthawk has also gathered data about the surrounding area. All the information will support independent analysis, which will help inform future drilling decisions and assess the extent of the various shale oil plays across the Jolly Ranch acreage.

Recompletion work has been ongoing for around a week to bring three wells into production. One Jolly Ranch well is currently producing oil at a modest 30 barrels of oil a day.

Going forward, Nighthawk is expecting a significant uplift in production.

The company also reports that the area surrounding Jolly Ranch is receiving increasing amounts of interest from other oil companies such as Conoco, South Western Energy and Ultra Energy.

Today’s operational update comes at the same time as the group’s financial results, in which the firm reflects on a period of transition. 

In the past few months, Nighthawk has been transformed with an £18 million fund raising and a deal to acquire a majority stake and assume operatorship of Jolly Ranch.

Revenues totalled just US$420,000 in the six months ended December 31. Nighthawk says this reflects low production, as a result of underinvestment, prior to the company taking charge of the project.

Additionally, it reported a US$12.6 million write down to the value of its initial 50 per cent stake in Jolly Ranch. This is informed by the price it paid to buy the additional stake in the project. And it said it had incurred a significant increase in administrative cost as a result of the deal.

Consequently, Nighthawk reported a US$16 million operating loss for the six period.

Nighthawk’s current work-over programme is fully-funded and at the end of December it had US$1.48 million in cash and cash equivalents – the £18 million funding was completed in January.

"The interim results cover a period of significant transition for Nighthawk which concluded with the announcement of the acquisition of a further 25 per cent interest in, and the operatorship of, the Jolly Ranch project,” Gutteridge said.

“The results also reflect the lack of investment in Jolly Ranch throughout 2011, which affected production and also left much remedial and repair work for us to undertake in order to improve production from the current low levels and to meet our own and Colorado State standards and requirements.

“This work is now well underway as the first step in a fully funded work-over and drilling program planned for 2012, and our focus is now on delivering operational success, including increased production levels. 

“We will be updating regularly on this program. We will also be monitoring the increasing levels of third party drilling and leasing activity taking place around our acreage, a trend that we regard as extremely positive for our own project."

Stephen Gutteridge, previously the non- executive chairman, has become executive chairman, it added.

Last Friday, Nighthawk said it had closed the open offer that was part of a £18.15 million fundraising announced at the end of December last year.

The group is using the money to acquire a further 25 per cent of the Jolly Ranch project from partner Running Foxes for US$12.5 million and to finance this year’s work programme.

For the stake, a total of US$8.5 million will be paid in cash, while Running Foxes will receive US$4 million-worth of shares.

The open offer for 74,003,918 new shares at 2.5 pence each to raise £1.85 million before costs was taken up by 44.5 percent of qualifying shareholders.

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

It has said 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”.