Nighthawk Energy has announced the Company's final results for the year ended June 30, 2008.
David Bramhill, Managing Director of Nighthawk, commented, "Nighthawk has made excellent progress. The drilling program to date on Jolly Ranch has greatly exceeded our expectations. Test flow rates have been excellent and the wells are being moved on to production. There has also been an active drilling and development program on our waterflood projects, the Buchanan Group, Devon and, the most recent acquisition, Xenia. With the waterflooding taking effect over the next few months, we anticipate seeing production levels rising significantly.
"We expect to see Nighthawk making a major transition from development to production over the next 12 months and we look forward to reporting our progress."
Review of Projects
Jolly Ranch Group Project
In April 2008 following a program of 3D seismic acquisition, our first well at the Jolly Ranch project in Colorado, the Jolly 2-1, was spudded. This resulted in the discovery of multiple hydrocarbon bearing horizons including both conventional and non-conventional producing formations. A further six wells have since been drilled to date, all of which have encountered similar production zones to the Jolly 2-1. Excellent flow rates have been reported on test, in particular from the Jolly 16-1 well which flowed 446 barrels of oil and over one million cubic feet of gas on a 24 hour test.
Three wells, the Jolly 2-1, Jolly 16-1 and Craig 8-1, are now on production with the remainder at various stages of testing and completion for production. A major development program is now underway on the project targeting primarily the Atoka and Cherokee shales, the Marmaton carbonate formation, and the Codell sandstone.
The Board and Running Foxes believe that the Atoka and Cherokee shales represent an emerging regional shale oil play which covers the entire Jolly Ranch acreage of over 225,000 net acres. In recent years in the United States, shale plays, including the Barnett, Bakken, Haynesville, Marcellus and Woodford shales, have become some of the largest and most profitable hydrocarbon producers.
Buchanan Group, Devon Oilfield and Xenia Waterflood Projects
Excellent progress is also being made on our waterflood projects, comprising the Buchanan Group, the Devon Oilfield and Xenia, which are located around the Missouri/Kansas border. On these projects, which cover a combined acreage of over 44,000 acres, over 80 successful development wells have been drilled. The average oil in place per well is approximately 250,000 barrels and a recovery rate of between 20 to 50% is expected. In addition, gas is being produced and sold from a number of these wells.
Due to the shallow nature of the producing formations, between 200 and 600 feet, the reservoirs are typically underpressured and a waterflood process is required to obtain optimum recovery. This process involves the drilling of water injection wells to flood the reservoir and drive the hydrocarbons into the production well bore. Waterflooding takes approximately six months from injection to achieve meaningful production. This process is inexpensive, relatively simple to implement and is a proven technique in the industry for the extraction of oil from shallow reservoirs. The geology of the reservoirs is straightforward and wells are being drilled and completed within two days.
Each well costs in the region of US $40,000 to completion. Using a conservative per well production rate of 5 barrels of oil per day ("BOPD") and an oil price of US $60, payback of costs should occur approximately six months following waterflooding. Within the next year we expect to have at least 100 wells in production across the waterflood projects, each generating between 5 and 20 BOPD (gross). These figures will have a significant impact on Nighthawk's production profile during 2009, complementing the expected ramp-up in production from Jolly Ranch.
At the time of the Company's admission to AIM in March 2007, Nighthawk's project portfolio consisted solely of a 37.5% interest in the Cisco Springs natural gas project located in Utah.
Our interest in Cisco Springs, which increased to 50% during the year remains a valuable asset. To date, 32 wells have been cased for production and a development program continues.
Commissioning of the Broadhead tap and gathering facilities took place in December 2007 and successful discoveries continue to be hooked up for future production.
An independent reserve update in respect of Cisco Springs was conducted by Oilfield Production Consultants Limited and 2P natural gas reserves were calculated to be 121 billion cubic feet of gas and 3.8 million barrels of oil net to Nighthawk. In addition, the potential of the Mancos Shale, a further formation in the region was confirmed.
Following a period of soft gas prices over the summer, the Cisco Springs region is beginning to see the start of the seasonal strong uplift in demand for natural gas and prices are increasing. Ancillary oil production continues at a rate of 10-20 BOPD.
Two exploration wells have been drilled at the Centurion project in southern Kansas. The Franklin 13-6 well encountered excellent live oil shows and strong gas kicks throughout a 60 foot pay zone in the Mississippian Chattanooga shale, a major reservoir in the area. This well has been completed as an oil producer. The Atoka-Nighthawk 13-11 is under test for gas.
The Cliffs project, located in the Illinois Basin, will target gas in the Devonian New Albany shales. We view Cliffs as a longer term play.
Nighthawk, together with its partner, Running Foxes, has during the last 18 months drilled in excess of 100 wells spread over the portfolio of projects. Ongoing evaluation of these results and other technical data have clearly exhibited to the Board a major difference between the projects in both scalability and, most importantly, the capability of generating sizeable near term production and cash flow.
The Directors strongly believe that results from both Jolly Ranch and the waterflood projects are such that the potential returns from these ventures in terms of likely proven reserves and cash flow will be a multiple of those from the other projects, including Cisco Springs. For this reason, in conjunction with Running Foxes, the Directors took the decision, whilst still advancing the other projects, to focus resources on Jolly Ranch and the waterflood projects with the objective of growing production and cash flow in the near term.
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