Upbeat Heeley says Nighthawk will be on an "exceptionally sound footing" in 12 months

The Nighthawk Energy (LON:HAWK) share price suggests a company in extreme distress. Yet nothing could be further from the truth, according to boss Tim Heeley.

Nighthawk, he says, is work in progress as completions and recompletions are carried out on the Jolly Ranch shale oil play in Colorado.

And this is part of a back-to-basics approach designed to place the business on an “exceptionally sound footing in the next year”, Heeley told Proactive Investors.

“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.” 

Part of this drive to create a ‘new Nighthawk’ is the recruitment of senior management with either City experience or operational expertise. 

The group is on the hunt for chief operating officer, while earlier this week it appointed a finance director.

Richard Swindells joins from Ambrian Partners, where he was Nighthawk’s broker and nominated advisor. 

It means he has very good understanding of the company, the challenges it faces and also the opportunities to develop the Jolly Ranch project.

The new FD also comes with an impressive track record for raising funds, having helped find £275 million for Ambrian clients.

The appointment does appear to have piqued the interest of investors in the past couple of days. 

However it is difficult to say whether this is a turning point for the stock which took a knock in after the publication of long-anticipated Gaffney, Cline Associates reserves report last month. 

On the face of it the 2P reserves figure of 27,500 barrels of oil looks pitifully small.

However 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 Gaffney, Cline 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. 

“We stress that these are not reserve forecasts and that actual reserve numbers will need to be certified.”

It may take another 12 months before the GCA work is updated to give a more meaningful figure. 

However Heeley says we can expect a production and operations announcement in the “next few weeks”, and periodic updates thereafter.

In the meantime, the stock continues to drift. In the year to date it is down over 40 per cent and it briefly went below 5 pence. 

However in recent days the trajectory has been upwards as buyers have entered the fray.

“The price continues to be under-strength,” Heeley said. “But what’s heartening is the institutional demand is there, and it shows we are doing the right thing.”

Investors buying in at this level possibly sniff a bargain too.  

Taking a very pessimistic valuation based on the company’s land holding, rather than its potential to produce oil, then Nighthawk is worth 10 pence a share at US$300 an acre, analysts point out. 

Westhouse, meanwhile, reckons the shares are worth 34 pence each based on an estimated net asset value for Jolly Ranch of 100 pence. 

In spite of the technical challenges and the depressed share price, Heeley remains guardedly optimistic about the future.

“Things don’t turn around overnight,” he concedes. “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.”