Nighthawk Energy investing US$7.5 mln in Jolly Ranch workover and new drilling

Nighthawk Energy (LON:HAWK, OTCQX:NHEGY) is launching a fully funded US$7.5 million program to substantially increase production from its Jolly Ranch shale oil project in Colorado, comprising a work-over of 15 wells and drilling of 5 new ones.

The work-over is estimated to cost US$750,000 and will take place over most of the second quarter of 2012.  Nighthawk is currently contracting two work-over rigs which are expected on location in March. They will work on 15 existing wells.

For the second half, it plans to start drilling five new wells to add production and further establish the range and extent of the Cherokee shale, with at least one well testing the Niobrara shales in the northern acreage.

The first well is expected to spud early in the second half. The current estimate for the drilling program is US$6.75 million.

In order to improve its understanding of the Cherokee shale, Nighthawk also plans to undertake more logging work and re-interpretation of seismic data. Additional seismic and geological basin studies are expected to be undertaken at a later stage.

The company has also noted the increased level of third party leasing and drilling activity immediately adjacent to Jolly Ranch and anticipates that additional valuable information will become available from these activities, it said.

During 2012 Nighthawk plans to invest an average of over US$600,000 gross per month in increasing the flow rate and sustainability of production from Jolly Ranch.

This is the highest level of monthly investment since January 2011 and compares with an average gross investment of under US$100,000 per month over the past 12 months, a period during which both partners were restricted by cash shortage.

The low level of investment in 2011 has had a marked impact on production levels, a trend which Nighthawk intends to reverse during 2012, it said.

Last month, Nighthawk completed the acquisition of a further 25 per cent of Jolly Ranch from Running Foxes Petroleum and took over operatorship of the project with a 75 per cent stake. 

Gross oil production from Jolly Ranch in 2011 reached 24,494 barrels of oil, a daily average of 67 barrels. Average production in January 2012 up to 23rd of the month, when Nighthawk assumed operatorship, was approximately 50 barrels a day.

Chairman Stephen Gutteridge said: “We are now commencing the implementation of a completely new development plan for Jolly Ranch, with Nighthawk in control as operator.

“Investment in the project has been severely restricted over the past 12 months which has resulted in lower production levels and the need for remedial work on a number of wells. We will now change this with the commencement of a US$7.5 million gross work program this year, with existing wells being worked on and 5 new wells to be drilled in the second half of 2012.

“Whilst we will not be able to fully quantify the potential for increased production until we have some results from the work-overs, we are confident that we can deliver a significant uplift on current levels," the chairman added.