Edison sees potential for Nighthawk Energy to evolve into mid tier producer in 2-3 years

Edison Investment Research released a report on North American based explorer Nighthawk Energy (AIM: HAWK), saying it had potential to evolve into a mid-tier producer over the next two or three years after making progress with de-risking its key Jolly Ranch and Revere projects in 2009, with visibility expected to improve “radically” in the coming months.

Oil in place estimates for Jolly Ranch and Revere stand at 730 mmboe (million barrels of oil equivalent) and 123 mmboe respectively with Edison saying that Nighthawk could have recoverable reserves of 220 mmboe un-risked and 122 mmboe risked with production about to gain momentum, reflecting intensified development and well test work, particularly at Jolly Ranch.

The research house said Jolly Ranch, which is located in the Denver basin in Colorado, was a potential company maker, calling it “broadly analogous” to the Great Plains Bakken plays with compelling project economics. Revere is already producing significant quantities gas from the Xenia field. The Cherokee basin in Kansas that hosts Revere has historically been a major oil and gas producing province based on Bartlesville Sandstone reservoirs, with medium quality oil and low capital costs.

Edison expects Nighthawk’s performance to improve due to rising production in H2 2010 after the company posted losses of US$2.5 million and US$1.7 million in the years ended June 2008 and 2009. Based on an average production rate of 140 boepd (barrels of oil per day), pre-tax profits for the current year are projected to be at US$0.5 million on sales revenues of US$3.1 million, assuming that all operational costs will continue to be capitalized.

While there would inevitably be a degree of uncertainty about 2011 and 2012, Edison said Nighthawk would be “comfortably profitable” at the EBITDA (earnings before interest, taxes, depreciation and amortization) and the pre-tax levels based on its production forecasts.

The company started this year with a cash position of US$42 million following a US$37 million placing in August last year. According to Edison’s estimates, the cash balance was at US$17 million at the end of January 2010, which it said was adequate to “comfortably finance the current development programme.”

Edison expects an “interesting” news flow pipeline in 2010 focusing on the results of the seismic survey at Jolly Ranch with potential new drilling targets, and operational updates from both Jolly Ranch and Revere. The research house added that a new independent survey may be commissioned to assess the resource base at Jolly Ranch across a broader area than hitherto.

Daniel Stewart & Company (DS&C) also was bullish on Nighthawk, and, just like Edison, highlighted its similarity to the Bakken shale plays, which have sold for US$5,000 per acre. A report issued by DS&C today said that the company’s learning stage at Jolly Ranch was nearly complete with a forthcoming development/production plan expected to support the share price.

DS&C said that a development scenario for Jolly ranch could be worth 40 pence, while resource value for Revere stood at 4 pence per share making for the price target of 45p.

Shares in the company last traded at 28.5 pence.  http://www.proactiveinvestors.co.uk/companies/news/13329/edison-sees-potential-for-nighthawk-energy-to-evolve-into-mid-tier-producer-in-2-3-years-13329.html