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”.

The company said that the funds raised will be used to meet ongoing costs and to push ahead with the first steps in a new work programme, which will initially involve further improvements to existing wells.

Nighthawk will have sole responsibility for the costs of the work on the existing wells, which are anticipated to be approximately US$400,000. 

Nighthawk has a 50-per cent interest in the Jolly Ranch Group project, which comprises the Jolly Ranch, Middle Mist and Mustang Creek areas. These cover approximately 410,000 gross acres on Lincolm, Elbert and Washington counties in Colorado.

Its partner Running Foxes Petroleum is the operator of the project and holds the remaining percentage interest.

19.7 million of the latest placing shares were taken up by Bronsstädet AB, a vehicle that is wholly owned by Mr Peter Gyllenhammar. 29.6 million shares have been allocated to Claesson & Anderzen, with another 29.6 million allocated to Johan Claesson. On completion of the placing, Gyllenhammar and Claesson will be interested in 9.4 per cent and 13.9 per cent of the company’s shares respectively.

“We welcome the strong support we have received from investors in this placing,” said Steve Gutteridge, Nighthawk’s chairman. “It represents an initial and welcome step towards rebuilding value for Nighthawk shareholders.”

The firm added that it would make further announcements on the work programme in due course.

Shares in Nighthawk were down 4.4 per cent at 3.3 pence each this lunchtime.

Nighthawk said this morning that it had been in discussions with institutional investors in order to raise funds so that it can acquire the 50-per cent stake from its partner Running Foxes Petroleum. Investor feedback had been “largely positive” but the current overall market conditions mean that the acquisition could not be executed.

Nighthawk is now proposing to push ahead in early 2012 with the first steps in the new work programme, which will involve undertaking improvements to existing wells and drilling a number of new wells. The firm is in discussions with Running Foxes about this work programme and about how Nighthawk itself might take on increased responsibility for it.

The maximum €5 million that Nighthawk plans to raise will be used to execute the proposed work programme, as well as support recent and ongoing costs.

“The new team at Nighthawk continues to see significant potential in Jolly Ranch and is determined to push ahead with our plans to begin unlocking that value in the coming months,” said Steve Gutteridge, Nighthawk’s chairman.

Shale Oil specialist Nighthawk Energy (LON:HAWK, OTCQX:NHEGY) reported a rise in second quarter production from its Jolly Ranch project in Colorado today, but reminded investors that most wells are on test and not permanently producing.

Production in Q2 rose to 3,079 barrels of oil net to Nighthawk compared with 2,062 barrels net to Nighthawk in the first quarter.

In its first quarter production update, the company had already flagged that second quarter production was expected to be higher due to increased workover activity and improved operational efficiencies to maintain production from the long-term test wells -  namely the Craig 4-4 and Craig 16-32.

Nighthawk said the production figures should not be used to calculate a barrels-of-oil-per-day figure as the wells, which are predominantly on test, are intermittently taken offline for routine maintenance, modifications to pumping equipment, weather related conditions, workovers, recompletions or completion in new zones.

As the number of wells increases, the effect of individual wells being taken offline will have less impact on the overall production figures.

The previously announced completion and recompletion work continues.  Work to further optimise costs and ensure reliable production is ongoing. Water and electricity lines have been laid to the Jolly 2-1, 16-1 and 10-5 wells.

The Jolly Ranch 2-1 well has been added to the current programme and was completed in the Cherokee A formation in late May 2011. The well was recently placed on pump and early volumes have indicated that the casing is likely to have a leak, which is inhibiting production. This will be remedied before being placed back on pump.

John Craig 7-2 was re-entered in late May 2011 to inspect the Cherokee A which had been previously fracced. Following analysis the fracture was shown not to have penetrated the Cherokee A and attempts were made to acidise the formation to see if production could be stimulated.

Whilst the horizon produced some oil it was not consistent enough to place on pump. However, the Fort Scott, which sits above the Cherokee A, was subsequently tested without any stimulation and produced sufficient oil for the well to be placed on pump to monitor the results.

Given the potential of the Cherokee A in this area; the 7-2 well sits approximately three miles to the North West of the Wiepking Fullerton Aloha Mula #1 which has produced over 220,000 barrels from a vertical Cherokee A well in the past two years, further drilling will be considered in this area.

In late June 2011, the Craig 15-34 well was tested in the Cherokee A and had oil shows during swabbing. The well was placed on pump in early July 2011.

Craig 7-34 is currently being acidised in the Cherokee A.

Further activities intended to enhance production from the following wells are now planned and being undertaken, Nighthawk added.

In a note, analyst Charlie Sharp, at house broker Matrix, said: "It is encouraging that production volumes at Jolly Ranch have increased substantially in Q2, although the absolute numbers are still very modest.

"Nighthawk’s current operational focus is on building sufficient technical understating to be able to predict productivity from future wells. A key part of this process is to identify the most optimal completion technique that will be used for full field development of Jolly Ranch.

"We continue to believe that Jolly Ranch has the potential to become a very large and valuable project for Nighthawk. However, more technical work is required to improve subsurface understating and drilling techniques."

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."

Chief executive Tim Healey, who has been in charge since September 2010, has bought just over 150,000 shares and he now owns 330,000 shares. Richard Swindells, who was hired as the group’s new chief financial officer earlier this month, also bought just over 150,000 shares. These shares represent Swindell's total holdings.

Heeley recently described Nighthawk, which is now firmly focused on developing the Jolly Ranch shale oil play in Colorado, as a ‘work in progress’. It is currently undertaking a work-over and re-completion programme which hopes will give a much greater understanding of the project that has lots of potential, but this potential has yet to materialise.

Speaking with Proactive Investors earlier this month Heeley emphasised the firm’s new approach. His back-to-basics approach is designed to put the business on an exceptionally sound footing in the next year, Heeley said. “In many ways this process is something akin to creating a new company,” he added.

“We are trying to do something complicated in the oil the world – something more complicated than a conventional oil field. And nobody should doubt this. But we are going in the right direction.” 

Nighthawk is one of the markets most talked about stocks, as far as private investors are concerned, and this chatter doesn’t always put the stock in the best light. Its critics point to low production numbers for wells completed to date and the project’s small resource.

However it is important to point out that Nighthawk’s jolly ranch is not a run-of-the-mill oil project. 

While on the face of it the 2P reserves figure of 27,500 barrels of oil looks pitifully small, there are two things to remember. First, the results were produced from 200 acres of the project’s 410,000 acres. And second, they were based on just two discrete intervals in the Cherokee formation. 

“We said the numbers were going to be low and we said this from day one,” Heeley said. “We’ve got to get more wells on the Cherokee, but we’ve also got to crack the Atoka (formation).

“We know there is oil in the Atoka. We have produced it, just not in sufficient volumes to get the reserves so we need to focus on this horizon too. This is where the effort is with completions and recompletions.”

A recent report from City broker Westhouse puts the Jolly Ranch data into context. Analyst Peter Bassett says the reserve numbers are likely to “grow significantly” as more wells and more horizons are included in the study. 

“If the 2P reserve numbers were applied pro rata to the 410,000 acres, there would be around 56 million barrels net to the company,” Bassett said. “Based on the 3P reserve numbers, the reserves for the whole acreage would be around 131 million barrels net.” 

On the 11 May Heeley said: Things don’t turn around overnight. Form where we are today I think it will be 12 months before the company is on an exceptionally solid footing. 

“After that I think there are another two years left in the project, if not a little more.”

Tim Heeley will be presenting at the Proactive Investors One-to-One forum at the Chesterfield Mayfair Hotel in London tonight – click here for more details.

Shale oil specialist Nighthawk Energy (LON:HAWK, OTCQX:NHEGY) this morning revealed the results of an independent reserves and resource report which puts the proved reserves of the Jolly Ranch Project in Colorado at 24,000 barrels of oil.

The study, compiled by Gaffney, Cline and Associates, comes up with the 2P and 3P figures of 55,000 and 128,000 barrels of oil respectively.

However the CGA data barely scratches the surface of Jolly Ranches potential, Nighthawk says. It points out the 2P figure is assigned to just two wells, while the 3P figure is limited to five wells, or just 200 acres of the project’s 410,000 acres.

Also the reserves statement is based on the oil recovered from just two intervals in the Cherokee formation.

Chief executive Tim Heeley said: “Although as expected these initial reserve numbers are low this merely reflects the fact we are in the early days of developing the Jolly Ranch shale project.

"The GCA report underlines the potential value and highlights the additional work required in order to determine the optimal commercial completion and stimulation techniques for the project's Cherokee and Atoka shale acreage. 

"Drilling by other companies in the area, plus continued leasing activity, helps reinforce our strategy and we will continue to execute our work programme in a logical fashion to achieve our strategic goals."