Thursday, April 28, 2011
Nighthawk Energy plc
Nighthawk announced the conclusions of the Gaffney, Cline and Associates ("GCA") Reserves and Resource Report on the Jolly Ranch Project, in which the Company holds a 50% working interest.
Highlights
- 2P Reserves only assigned to the two wells projected, on the basis of production to date, to recover greater than 20,000 bbl (gross)
- 3P Reserves attributed over limited areal extent of just five wells (c. 200 acres of the project's 410,000 acres)
- Reserves assessment based on Decline Curve Analysis method and derivation of "type curves"
- Reserves currently based only on two discrete intervals in the Cherokee formation
- Well portfolio needs expanding to establish Contingent Resources numbers and provide a true reflection of project's value
- Report highlights additional work required in order to determine the optimal commercial completion technique
Reserves
The declaration of Proved Reserves by GCA has been limited to wells that are projected to recover 20,000 barrels or more. The declaration is based on Decline Curve Analysis, assigning reserves as defined by the SPE Petroleum Resources Management System ("PRMS"). Therefore, proved reserves have only been attributed, at this stage, for two wells with continuous production from the Cherokee formation, namely the Craig 4-4 and Craig 16-32.
Furthermore, it should be noted that these reserves are limited to discrete interbedded Cherokee intervals within these wells. Other horizons, especially within the Atoka formation, have been excluded due to the current lack of adequate production data or the absence of data in the case of uncompleted horizons. The current and future work program will focus on determining the correct method and optimum target within these other horizons to build value.
All of the reserves quoted below are gross, representing 100% of the working interest in the project.
Proved Reserves
The Craig 4-4 is completed in two Cherokee horizons; the Tebo between 6,644 ft and 6,664 ft and the Tebo 'B', between 6,705 ft and 6,711 ft. The Craig 16-32 is completed in the Cherokee 'A' between 6,526 ft and 6,530 ft.
Resource Assessment
Inclusion of Contingent and Prospective Resources requires working interest lands to be developed and further wells to be drilled, which are likely to be both vertical and horizontal. Future production is estimated based on the projected recovery from the decline curves of analogous wells derived from the results of pilot projects.
The Jolly Ranch Cherokee/Atoka shale oil project is in the early stages of development and is still in the process of determining the optimum completion and stimulation technique and the optimum intervals on which to apply these techniques. Given the low number of wells drilled to date compared to the potential development program, the current set of wells with estimated ultimate recovery of 20,000 barrels or more (considered to be the economic minimum) is too small to extrapolate across the wider project area with statistical confidence.
In addition, as directly analogous plays are rare, the type curves are unique to each play and it will take more wells to fully develop confident projections of ultimate recovery.
Additional recompletions and further drilling/stimulation have to be undertaken to increase and confirm the body of knowledge such that it can be consistently and prudently applied to a wider area. As such, it would be misleading to generate a resource estimate at this time without more wells with successful completions as well as further production track record.
Regional Activity
Available results indicate other operators in the county have targeted the Cherokee 'A' unit with encouraging results. Great Plains Field vertical wells, approximately four miles south east of the Company's John Craig 7-2 well, have cumulative production exceeding 60,000 bbl in the Cherokee 'A' per well.
In addition, Newfield Exploration Company recently drilled the Mosher 1-1H, approximately five miles to the North East of the Craig Ranch area, and completed the Cherokee 'A' unit through a horizontal lateral. Due to the confidential nature of the well, little information has been released, but it is reported on the online Colorado State Oil and Gas Information System that the well produced approximately 10,000 barrels of oil over the last six months of 2010. This is encouraging and further evaluation will be needed as production increases and data becomes available.
Tim Heeley, CEO of Nighthawk, commented, "Although as expected these initial reserve numbers are low this merely reflects the fact we are in the early days of developing the Jolly Ranch shale project.
"The GCA report underlines the potential value and highlights the additional work required in order to determine the optimal commercial completion and stimulation techniques for the project's Cherokee and Atoka shale acreage.
"Drilling by other companies in the area, plus continued leasing activity, helps reinforce our strategy and we will continue to execute our work program in a logical fashion to achieve our strategic goals."
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