Nighthawk Energy to Begin Work-Over Program at Jolly Ranch Project

US-focused Nighthawk Energy announced Thursday that next month it will commence a comprehensive work-over program focused on 15 existing wells on the Jolly Ranch shale oil project in Colorado. Two work-over rigs are currently being contracted and are expected on location in March. The work-over program is anticipated to extend through most of the second quarter of 2012, with a total gross cost of approximately $750,000.

All the Jolly Ranch wells have been re-evaluated and specific actions are planned for 15 existing wells, said the firm. These plans will involve a range of remedial work including: replacement of pumps, casing and other faulty equipment; re-perforation of potentially productive zones; and acidization and other stimulation techniques. New logging will be undertaken at a number of wells to gather additional data on the Cherokee shale formation and other potentially productive zones.
In addition to the planned work on potentially productive wells, the review identified one older well as beyond repair and this will be plugged and abandoned as part of the work program. Additional topside remedial work will also be required at some of the well locations. 
Subsequent to the work-over program, Nighthawk plans and has budgeted to drill five new wells to add production and further establish the range and extent of the Cherokee shale on the company's acreage. Nighthawk expects at least one well to test the possibility of Niobrara shales in the northerly acreage and also to drill a horizontal step out from an existing vertical well.
Subject to the availability of drilling rigs, the first of the new wells is currently anticipated to spud early in the second half of 2012. The current gross cost estimate for the drilling program is $6.75 million. The information obtained from the work-over program, combined with the additional studies being undertaken, will better inform decisions on well location and targets.    
The Jolly Ranch project comprises over 400,000 gross acres and Nighthawk's primary objective is to clearly establish that this acreage contains a highly valuable shale oil play. The work-over and new drilling program is expected to provide important initial steps in this process by increasing production and adding substantial additional data on the Cherokee shale formation.
However, further work is needed to establish the certainty and credibility of repeatable drilling and completion techniques and to provide evidence of the continuity of the Cherokee formation over the acreage.
The company will shortly commence additional work comprising logging of wells and re-interpretation of seismic data. Additional seismic and geological basin studies are expected to be undertaken at a later stage.
Nighthawk said that it 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.
Where practicable flow meters will be installed on all commercially producing wells and will help give timely and accurate production information to assist in the evaluation and study process.
During 2012 Nighthawk plans to invest an average of over $600,000 gross per month in increasing the flow rate and sustainability of production from Jolly Ranch. This, it said, is the highest level of monthly investment since January 2011 and compares with an average gross investment of under $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. Full-year gross production amounted to 24,494 barrels of oil, with average production coming in at 67 barrels of oil per day.
Gross average production in January 2012 up to January 23 (when Nighthawk assumed the operatorship) was approximately 50 bopd.
"We are now commencing the implementation of a completely new development plan for Jolly Ranch, with Nighthawk in control as operator and 75-percent working interest owner. 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," said Nighthawk Chairman Stephen Gutteridge.
"We will now change this with the commencement of a $7.5 million gross work program this year, with existing wells being worked on and five 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."