Nostra Terra’s Lofgran discusses Egypt and firm’s plans in the Permian Basin
The last few months have seen Nostra Terra Oil & Gas announce developments in its legal situation in Egypt and progress at Mesquite, its new opportunity in the Permian Basin. Here, chief executive Matt Lofgran updates us on both areas and highlights his view for the organisation’s future.
Proceedings in Egypt
Last month saw Nostra Terra update its investors on legal proceedings at East Ghazalat, an Egypt-based asset in which the firm’s subsidiary Nostra Terra Inc (NTI) holds a 50pc participating interest. In a release, the firm said that the London Court of International Arbitration Tribunal had found that NTI is in default of the asset’s joint operating agreement. This related to the non-payment of cash calls in November and December 2015 totalling $1,062,613 plus interest to North Petroleum International Company, East Ghazalat’s co-owner and operator.
In summary, the ruling could result in the transfer of NTI”s interest in the concession to North Petroleum. However, Nostra Terra said it is now considering its next steps regarding the asset with its legal advisers. This could include seeking damages relating to alleged breaches of East Ghazlat’s joint operating agreement by North Petroleum. Regardless of what happens next, Lofgran told us that East Ghazalat has not been considered to the company’s operations for some time, adding:
‘The concession has not been included in our production, reserves, or revenue for several years given the disagreement with the operator that came about from other past partners. It was written off in the financials some time ago as well. The ruling is against the subsidiary, and has no recourse to Nostra Terra, hence no liability to Nostra Terra. Our focus remains in areas where operate and have control.‘
The update on East Ghazalat led Nostra Terra’s share price to dip by nearly 6pc to 1.6p, continue a long-running decline that has seen the business fall from highs of 4.1p hit in October last year. As at writing, shares are sitting at 1.55p. On the day following the news, Lofgran took the opportunity to strengthen his position in his business, purchasing 550,000 shares at 1.7p – equal to more than £9,000.
This takes the chief executive’s total interest in his business to 6,515,976 shares, or, 3.31pc of its total issued capital. Put simply, Lofgran told us he decided to top up his holdings because he believes that Nostra Terra continues to represent a great opportunity:
‘The rationale behind the purchase was petty simple- I believe that Nostra Terra represents a good investment. I have very few windows in which I can buy, given the nature of being an “insider” much of the time. I had a short window and felt it was a great opportunity.’
Looking forward, Nostra Terra’s focus will be on its assets in the US. In particular, the company is continuing to build up its position in Texas’s world-renowned Permian Basin – a hotbed of oil and gas production. Here, the firm is targeting an area called Mesquite, where it acquired a 100pc position in 2,184 acres containing tight formations last October. These are typically oil-bearing and of low permeability, making them ideal targets for horizontal drilling. The structures have delivered in other areas of the Permian, with comparable horizontal drilling producing at rates of 200-300bopd.
The first iteration of Nostra Terra’s field development plan for Mesquite, which was carried out by Trey Resources, was released in January. It gave the asset a $21.6m NPV10 valuation and a 34pc internal rate of return (IRR) at $53/bbl oil once fully developed. Meanwhile, the area has an estimated NPV10 of $28.6m and an IRR of 46pc at $60/bbl oil.
In April, Nostra Terra took another step forward at Mesquite announced that it was in advanced discussions regarding a new 160-acre lease opportunity in the target area. The new lease would give the company an immediate opportunity to drill a half-mile horizontal well to prove up and increase its overall proven and probable oil reserves at Mesquite. The area is standalone but is near its existing acreage. As such, the company believes it could bring partners into its new lease while retaining full ownership of its existing Mesquite ground.
In July, Nostra Terra said that leasing for the 160-care standalone lease was ‘moving forward as planned’, with terms agreed with all mineral owners and executed agreement expected ‘in the coming weeks.’ Elsewhere, the firm said that Trey had has estimated that a single horizontal well has $3.3m NPV10 valuation to Nostra Terra at an oil barrel price of US$60 (WTI). Full development of the field could push the total NPV10 valuation up to US$28m based on a programme of at least eight wells, each with a 5,000ft lateral section.
Speaking to TMS, Lofgran said that progress is continuing at Mesquite, with the firm also looking at other opportunities in the Permian Basin: ‘Leasing on the 160 acres is nearly complete which will enable us to drill a horizontal well with a half-mile lateral. That is in addition to the several locations we already have 100% leased where we can drill 1-mile laterals. Aside from that, we are beginning to see some interesting opportunities in the Permian Basin.
‘We have been building a strong foundation in the company with things such as our banking facilities that will help us really leverage these opportunities. It is all about activity in the field- we are working hard behind the scenes and will make further announcements when appropriate.’
Nostra Terra Oil and Gas – Online Investor Conference Call and Q&A Session – 13/08/2019
The author was not remunerated and does not hold shares in the company