Nostra Terra boss Matt Lofgran talks Permian Basin, Pine Mills, and plans to boost growth
After a brief dip on the back of a quiet period for news, Nostra Terra Oil & Gas has spiked over the last month in response to a significant production increase and a re-basing of its landmark lending facility. With flow results for Nostra’s much-anticipated G6 well in Texas’s Permian Basin due imminently, we spoke to CEO Matt Lofgran about plans for growth in the face of increasing production rates and rising oil prices.
Permian Basin potential
After its Twin Well in the Permian Basin surpassed expectations earlier this year, Nostra stepped up its activity in the highly-prospective US basin in April by launching a two-well back-to-back programme. The two wells targeted the same formation as the Twin Well with the aim achieving a similar economic profile, and were both spudded in May.
While the second well was dropped early, after encountering a high-pressure inflow of salt water, the first well – called G6 – was completed after several days. At the end of June, Nostra said G6 was being put into production, with oil shows already present at surface. However, as the firm does not release initial flow rates, the market has yet to hear anything else about the well. Lofgran tells us the business has been waiting for stabilised flow figures and expects to report results ‘shortly’.
Beyond G6, Lofgran tells us Nostra has many more drilling targets in the Permian Basin thanks to its ‘held-by-production’ (HBP) strategy, which means output from existing wells on the leases stops them from expiring. This method allowed it to “bank” locations, ie. to create an inventory of drilling locations, by acquiring production at a low cost when oil prices crashed before, developing it at its own pace in the future.
Going forward, Lofgran says that Nostra will not necessarily limit itself to acquiring assets that are HBP in the Permian Basin and is even looking at other assets and acquisitions to expand in the area and Texas generally:
‘It was a great way to make our initial foray into the Permian Basin. We were able to build an inventory of drilling locations that we can develop at our own pace. We will look to do more when appropriate, but it doesn’t always need to be the case. We are happy to acquire new leases as well, as long as it is something that is prospective and can drill on very soon. When we did our first acquisition oil prices were trading around $30-40/bbl, so that was a good time to go after the leases that were held-by-production. However, at higher oil prices it is not as critical.’
Pine Mills growth
Another critical update came last month when Rostra reported a significant production increase at Pine Mills, its wholly-owned and operated producing oil field in Texas. Initial production from a workover performed on an existing, inactive wellbore at the field greatly exceeded expectations, adding around 25bopd in its first week of production alone.
The upgrade comes around half a year after Nostra updated its reserves report for Pine Mills, which saw 1P (proven and producing) reserves increase by 38pc at the site to c.450,000bbls. It also identified an oil skirt with up to 12 potential new well sites and 1.39MMbbls of gross recoverable oil. With Pine Mills at record production levels, Lofgran says Nostra is really starting to benefit from the fixed operating costs:
‘Pine Mills is a solid asset where we have a relatively fixed operating expenditure. This means that any increase in oil price or production does result in a proportionate increase in costs. As we drill more wells and find more reserves, the benefits of this are going to keep being felt in an increasingly beneficial way.’
In line with this, he says the firm expects to continue upgrading production at the site: ‘With this most recent workover we identified a potential opportunity for upside and got a nice increase in reserves. We are looking to do more of these. At the moment, there is also new drilling activity neighbouring us, so we are taking the time to understand what they are doing and how it affects us. A key point here is all the additional drilling in Pine Mills is held by production, so we can do it whenever we want.’
Senior facility expansion
Last month also saw Nostra reveal that the borrowing base for its senior lending facility had jumped $750,000, bringing the total base for the $5m facility to $1.95m.
When first announced, the facility was welcomed with open arms by the market as it allows Nostra to fund growth without repeatedly diluting shareholders through equity placings. What’s more, the facility has no geographic restrictions and an interest rate of just 4.75pc, great terms for a business of Nostra’s size. It was also secured with Washington Federal Bank, a well-regarded energy market lender with $15bn in AuM- clearly a ringing endorsement for Nostra’s assets given the due diligence that must have taken place.
July’s review was the first in a minimum of two annual borrowing base reviews and, while the increase was reassuring, it was calculated using Nostra’s Pine Mills production as of 1 May.This means it did not include production from the Permian Basin or the production increase at Pine Mills. As a result, Lofgran is confident the next redetermination will see the borrowing base increase further:
‘The bank is going to do these a minimum of twice a year and, realistically, they will not always be positive- that is just how these things go. However, for the next six months, I do not see there being that much of a significant change downward in oil prices and we have had such a large increase in our production alongside this that I would expect a significant increase at the next redetermination.’
Cash flow positive
With revenues hitting record highs in 2017 and increasing further since, Nostra has been able to stay cashflow positive since earlier this year. Lofgran tells us this is a particularly important step for the business, as it means it is now at the point where it can go and grow without necessarily needing to carry out a placing:
‘It would be challenging to find a company that is cash flow positive with a £50m market cap or less. Most AIM companies are not focused on this as they are high-risk exploration. We’ve reached a point that we’re cashflow positive on the PLC level. Now that we have a solid foundation we can look to take bigger moves to grow the company at a quicker pace.’
You can find Matt Lofgran CEO at Nostra Terra Oil & Gas on Twitter here
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Recent footage from the companies Permian basin project