Nostra Terra – Mesquite Update

Permain Basin

Nostra Terra’s Lofgran talks through firm’s plans to drill its first horizontal well in Mesquite

Monday saw shares in Nostra Terra Oil & Gas (LSE:NTOG) jump 10pc to 2.6p after the business announced plans to drill its first horizontal well in the Mesquite target area it has identified in Texas’s Permian Basin. Here, chief executive Matt Lofgran talks us through the development and Nostra’s strategy for advancing its Permian Basin position.

Steps forward

In a Monday morning update, Nostra announced that it is in advanced discussions with regards to a new 160-acre lease in the Mesquite target area, which itself covers more than 30,000 acres. The firm said the new contract gives it a chance to immediate drill a half-mile horizontal well, which it intends to fund through a combination of cash and selling off a percentage working in the opportunity. It added that it has already received expressions of interest in the lease from potential industry partners.

From here, the company plans to apply for a permit to drill the first horizontal well as soon as discussions with the lease’s current mineral owner complete. It then plans to secure a rig and prepare the pad before completing drilling and completion operations. Subject to the execution of the lease agreement, these activities are expected to take place in the coming weeks and months.

Speaking to TMS, Lofgran said Nostra feels that horizontal drilling is presently the most effective way of drilling in the Permian Basin, which has to date been dominated by vertical wells. As the name suggests, horizontal wells involve drilling vertically then turning 90 degrees and drilling horizontally. By ‘sucking up’ oil from a much greater area, the horizontal approach requires far fewer wells to be drilled. In combination with hydraulic fracturing, they can also get into inaccessible areas in the spacing between vertical wells.

What’s more, horizontal wells enable operators to drill several miles away from the reservoir they have identified. This grants them access to hydrocarbons in sensitive above-ground areas. The practice is being used increasingly in the Permian Basin, driving record levels of shale production and helping the US to take market share away from traditional dominant oil and gas players like Saudi Arabia.

Mesquite itself contains tight structures that typically offer little permeability, making them ideal targets for horizontal drilling. Such wells in comparable Permian Basin structures have delivered oil at rates at 200-300bopd, according to earlier releases by Nostra.

‘We are in a prolific area drilled very successfully with vertical wells. In some cases, the have been drilled all the way down to 10 acres spacing per well,’ Lofgran added to us. ‘We do not feel this is the best way to drain a reservoir moving forward. We think horizontal wells will actually have better success, with much bigger multiples than a vertical well.’

IMG_20181107_093058.jpgStep-by-step

The new lease is standalone, near, but not adjacent to, Nostra Terra’s existing 2,184 (1,984 net) acreage in the Mesquite target area, which it entered last October. A field development plan carried out by Trey Resources in January gave the business’s first 1,384 net Mesquite acres 400,000bbls of recoverable oil and an NPV(10) of $28.6m at US$60 oil. In comparison, Nostra’s market cap currently sits at just £5.1m.

 

Nostra has already received numerous unsolicited approaches about its Mesquite acreage from industry partners and opened a data room containing an analysis of the asset in January to support discussions. Notably, Nostra received a significant vote of confidence from Miton Group last month, when the City staple bought 10.1pc of the firm’s share capital during a placing aimed at accelerating developments in Mesquite.

In Monday’s update, the company said that, because its new lease is standalone, it expects to be able to bring in partners while maintaining a 100pc interest in its existing Mesquite asset. On top of this, it said the well would allow it to prove up and increase its overall proven and probable oil reserves at Mesquite.

Lofgran said he feels that proving up Mesquite using a standalone asset is strategically beneficial. He added that Nostra will look at pursuing a similar strategy moving forward as it continues to build its position in the target area.

‘The new lease is part of the Mesquite target area and shares its characteristics, but we have structured our approach in a way that this is standalone and not contiguous with our existing acreage. This gives us the ability to promote out and bring in partners on just this lease and still retain 100pc of the Mesquite asset. Meanwhile, drilling a well at the new licence will continue to prove up our existing acreage and the overall Mesquite target area,’ he said.

‘Moving forward, we will have other leases in Mesquite, and some will be contiguous, and some will not be. We have got just under 2,000 acres in an area that is bigger than 30,000 acres. If we are going to continue to expand our footprint in the area, then, given our size right now, we will have to bring in a partner. We figured the approach we demonstrated with the new lease is the smartest and most strategically beneficial way of bringing in another party as it allows us to hang on to the large asset.’

Wider area

Finally, we asked Lofgran for his thoughts on the news on Monday that Anadarko Petroleum is on course to accept a $55bn takeover offer from its US rival Occidental Petroleum. This outbids a previously agreed $50bn sale to oil major Chevron. The deal would give Occidental assets in the Gulf of Mexico, a liquefied natural gas project in Mozambique and production in the DJ Basin of Colorado. However, the biggest target for the major is likely Anadarko’s shale acreage in the Permian Basin. 

Lofgran said deals of this scale are encouraging for the Permian Basin as a whole, reflecting the area’s health and prospectivity: ‘There is a reason why these guys are here and want to increase their position further. The Permian Basin is still in the first half of its life as opposed to the second half. There is a lot of activity left in this area, so I think these huge deals bode well for the Permian in general. I think we will continue to see large and small deals being made, and this is good for the entire Basin regardless of what particular location the activity is focused on.’

Our very own Bonnie Hughes recently interviewed Nostra Terra CEO here
You can see more on Nostra Terra Oil & Gas below 
The author was remunerated but does not hold shares in the company 


Categories: Bulletin