Nighthawk Energy 's (HAHK) share price is largely underpinned by its oil producing assets meaning little value is being put on its significant exploration potential, which includes the potential for major unconventional oil and gas finds from an imminent drilling campaign.
- • Improving production profile
- • Unconventional potential
- • Drill results from Snow King
- • Departure of executive chairman
- • Short-term funding worries
Nighthawk's operations are centred on the Smoky Hill and Jolly Ranch projects that lie within the company's 300,000 acre catchment in Eastern Colorado. Current output is primarily derived from the Arikaree Creek oilfield within Smoky Hill, which came on-stream in November 2012 following a successful drilling campaign. A Competent Person's Report published by MHA Petroleum Consultants included an estimate of 254m barrels of proved and probable net reserves.
Recent activity, and the focus of investor attention, has centred on Nighthawk's Snow King exploration well, located just four miles away from the Arikaree Creek oilfield. In April, the Snow King well encountered a 40 ft oil column in the Mississippian horizon. The well commenced production on 12 April 2014 at an initial production rate of 300 to 400 barrels per day, with no water shows, and continued to flow at the upper end of the range. Further drill results from Snow King are keenly anticipated as they could point to a new area of development that could potentially match nearby Arikaree in scale.
New output from Snow King has meant that Nighthawk Energy edged closer to its target of producing 3,000 barrels of oil a day (bopd), with 2,153 bopd recorded from its wells in Colorado between 13 April and 6 May. Broker Westhouse securities puts a value on these oil producing assets of 11p, or 10.1p net of debt.
| NIGHTHAWK ENERGY (HAWK) | ||||
|---|---|---|---|---|
| ORD PRICE: | 11.75p | MARKET VALUE: | £112m | |
| TOUCH: | 11.75-12p | 12-MONTH HIGH: | 14.5p | LOW: 4.49p |
| DIVIDEND YIELD: | nil | PE RATIO: | 3 | |
| NET ASSET VALUE: | 6¢* | NET DEBT: | 50% | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 1.0 | -35.8 | -6.4 | nil |
| 2012 | 1.6 | -2.4 | -0.3 | nil |
| 2013 | 26.2 | 13.3 | 2.1 | nil |
| 2014* | 65.0 | 54.5 | 4.3 | nil |
| 2015* | 93.2 | 69.2 | 6.2 | nil |
| % change | +43 | +27 | +44 | - |
Normal market size: 30,000 Matched bargain trading Beta: -0.37 *Westhouse Securities forecasts **Includes intangible assets of $48m, or 5¢ a share £1=$1.68 | ||||
But there is also the potential for signficant new finds. Not only does the Snow King discovery increase the chance of there being other similar discoveries in Nighthawk's acreage, but the company also says it penetrated Pennsylvanian formations which could potentially contain extensive unconventional oil & gas deposits.
Nighthawk has a a farm-out agreement with a Denver-based oil and gas company for three vertical wells within the Jolly Ranch and the initial farm-out well, originally planned for April 2014, is expected to spud imminently. Nighthawk is getting a free carry on the wells in exchange for a 50 per cent working interest. Westhouse has put a value of 6.4p a share on the unconventional potential, but believes successful drilling could prove game changing.
It's hardly been plain sailing for Nighthawk in recent years, but executive chairman Stephen Gutteridge has been credited with changing the fortunes of the company around. He will step down from the post by the end of September, while Nighthawk's largest investor Johan Claesson was recently appointed to the board. The latter move facilitated a rescheduling of debt payments ahead of a planned re-financing of the company's existing short-term obligations.
