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Nostra Terra Oil and Gas PLC

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A very active and profitable 2022 beckons for Nostra Terra Oil and Gas

 

“…With several irons in the fire, Nostra Terra’s share price may well be set on a steady upward course this year…”

 

Nostra Terra Oil and Gas (AIM:NTOG), an exploration and production company with a portfolio of assets in three different Texas basins, has moved into 2022 in a strong position to take advantage of soaring oil prices, embarking on a fully funded drilling programme made possible through robust production during 2021.

Nostra is focused on developing a set of low risk, producing assets in the southern US with development upside. The company’s primary asset is a 100pc working interest in Pine Mills, a 2,400 acre producing oil field in eastern Texas which has produced over 12 million barrels of oil since its discovery in 1950s. After taking ownership Nostra Terra carried out low-cost workovers and upgrades to increase production and overall uptime before farming out an undrilled 80-acre portion of the field last year to Cypress Minerals LLC, in return for a 25pc carried working interest on the first well drilled. The farm-out nearly doubled the field’s gross production to more than 100 bopd. Nostra also has a 50 to 75pc interest in a set of leases in western Texas, and last year took a 100pc interest in the producing Caballos Creek Oil Field to the south of the state. All produce from conventional reservoirs with long-life reserves.

The company entered the year with a positive agenda for 2022, planning ‘one new development well in Pine Mills’ and ‘two to three new wells in the Permian Basin’. Operations commenced in January on the Pine Mills well, Fouke #2, which will offset the producing Fouke #1 well, targeting the same horizon. Nostra has a 32.5pc working interest in the wells and the farmout area earmarked for new locations. The well spudded on 17 February, with drilling – permitted to a total depth of 6,000 feet – expected to take ‘approximately 10 days’. Informed by 3D seismic data, operator Cypress Minerals is targeting the well’s ‘prolific Woodbine Sand’, but ‘will also evaluate several other up hole formations prior to reaching total depth’. Drilling will be followed by logging and completion operations.

Nostra’s road to cashflow positive

 

Nostra is funding its new programme through the cash resources, facilities and cash generated from the oil producing portfolio it nurtured through the challenging conditions of the pandemic. The company’s relatively conservative asset base did not leave it as exposed to the downturn as many of its indebted neighbouring operators, particularly shale producers. Nostra battened down the hatches in 2020 by cutting operating and overhead costs by nearly two-thirds and hedging more than half its production. The company’s final results for the year ended 31 December 2020reported revenues for the year of $1,010,929, down from $1,795,000 in 2019, reflecting the slump in oil prices and a decline in production from temporarily shutting in assets at the peak of the pandemic.

But interim results published in September for the six-month period ended 30 June 2021 showed the company was beginning to benefit from the resurgence in oil prices, recording an average sales price for the period of $63.28 per barrel, up from $25.45 for the first half 2020. Together with a 25pc increase in total production to 15,211 barrels oil, up from 12,152 barrels, the price rise secured a 130pc increase in revenue to $963,000, up from $417,000. Gross profit from operations swung from a loss of $115,000 to a $250,000 profit, and the loss for the period fell from $437,000 to $269,000. Nostra expects to be cashflow positive for the full year 2021.

The company was further buoyed last year by an independent reserves upgrade which, charged by rising prices, estimated that an increase of 27pc to 1,994,240 gross barrels oil had the potential to yield just under $24m future net income (total proved), a 58pc increase from 2019 year end. The reserve estimates rose further a few weeks later to reflect the continued rise in prices, $68.5m future net income (total proved) forecast on the assumption of a $75 oil price.

The company’s November operations update, published in November, confirmed that the farm-out well at Pine Mills was continuing to produce at strong levels, reporting a 44pc increase in production for the first half of the year to 121 net bopd, up from 84 net bopd in H1 2021. And another update this month announced a 23pc increase in net daily production, from 96 bopd in Q3 to 118 bopd in Q4, which together with a 10pc increase in oil sales price per barrel generated a 37pc increase in revenue, from  $558,000 in Q3 to $767,000 in Q4. The update also reported that the company is organising tenders for equipment for its Permian Basin drilling campaign.

Nostra’s November update also referenced a possible new opportunity in Tunisia, ‘a large block with existing discoveries, offering both exploration and appraisal activity’ for which the company ‘has negotiated terms and is waiting final approval’. According to Nostra’s 5 January update, the company ‘continues to progress an opportunity in Tunisia’, which if successful ‘would provide significant upside potential through exploring a large, gas-prone acreage position in a very prospective region at a time when the gas market is very strong.’

All set for 2022?

 

After some years in the doldrums, Nostra’s shares are climbing, up from 0.32p going into the year to 0.5p at the time of writing. The company has worked its way into a financial position allowing it to grow organically, generating decent profits through inexpensive production. The second well at Pine Mills, for which initial results are expected soon, is following the playbook of the first well, which continues to produce strongly. Then there are the prospects of further drilling in the Permian Basin, and further news of the as yet enigmatic Tunisian opportunity.

And like other oil and gas companies, of course, Nostra continues to revise its projections in light of the ongoing surge in energy prices, now supercharged by Russia’s aggression in Ukraine, the fallout from which includes the indefinite pausing of the Nord Stream 2 pipeline. (We took a long look at the prospects for oil and gas sector in a feature earlier this month.) With several irons in the fire, Nostra Terra’s share price may well be set on a steady upward course this year.

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