Nighthawk Energy able to harness institutional support with cash call, says Westhouse

Nighthawk Energy’s (LON:HAWK, OTCQX:NHEGY) £2.75 million share placing confirms the company can “harness institutional support” to take its Jolly Ranch shale oil project in Colorado to the next stage of development, according to City firm Westhouse Securities.

The cash call is part of wider refinancing to fund the £8.1 million ($12.5 million) acquisition of a further 25 per cent of Jolly Ranch from Running Foxes.

The group will have 75 per cent of the property, with the latest tranche costing around US$122 an acre.

This compares with US$25,000 an acre for established shale plays such as the Bakken, in North Dakota, or the Eagle Ford in Texas.

“The key now is for the company to put the Colorado shale plays on par with those in other parts of the US, which have commanded the lion’s share of attention to date,” said Westhouse in a note to clients.

Earlier, Nighthawk said it received strong support for a cash call that will bankroll ambitious plans in Colorado as it placed 155.7 million shares with institutions at 2.5 pence each raising almost £2.9 million gross, or £2.75 million net of expenses.

Directors, including chairman Steve Gutteridge and chief executive Tim Heeley, participated in the cash call.

Gutteridge said: “The strong support we have received for the placing is a further vote of confidence in Nighthawk as a renewed company with substantial potential as a sizeable US shale oil player. 

“Combined with the support of our two largest shareholders through the convertible loans, Nighthawk is now well-funded to press ahead in 2012 as operator, with a focused development and drilling program at Jolly Ranch."

In total, Nighthawk is raising £18.15 million, which will fund the acquisition as well as next year’s work programme.  This is being financed by the issue of debt and equity.

In the same announcement on December 28 it was also revealed that Running Foxes has entered exclusive discussions to sell its remaining 25 per cent stake in Jolly Ranch to a “third party”.

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

It says 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”. 

By controlling the development, the company said it will be able to deliver greater value to shareholders by focusing on a number of key “development factors”.

These include well design and drilling operations, logging and well completion design and the increased use of horizontal wells. 

Once the deal is completed, Tim Heeley will step down as chief executive and as a director.

However he will work with the existing Denver team to “set up and manage the operational and commercial structure and execution required to deliver sustainable, profitable production from the Jolly Ranch Project”.

The terms of deal outlined today value Jolly Ranch at less than the valuation in last full-year accounts.

So it is likely the company will impair the value of the project when it publishes the interim results.