Nighthawk has agreed an equity drawdown facility (EEF) that allows it to “negotiate from a position of strength” with potential partners carrying out due diligence on the Jolly Ranch shale-oil exploration area.
Consultant Macquarie-Tristone is charge of the marketing process, which began over the summer. And while a number of firms have been given access to the company’s data room, nobody has yet tabled a formal offer.
Nighthawk will call time on negotiations at the end of the year if it can’t broker a deal. And it will begin a new drilling programme on the site.
“We can use the money as a backstop. It immediately removes that question about whether you have funding, because we do have the funding now.
“It removes the element of doubt and gives us flexibility and optionality.
“(The equity drawdown facility) means we can talk from a position of strength, which is not something we’ve necessarily been able to do before.
“We’re encouraged by the facility and provided we use it correctly we can kick on from here.”
The funding package is being provided by Darwin Strategic, part of the Evolution Group.
And it gives the firm the financial wherewithal to carry out the work needed to “deliver a commercial project” with the added bonus of some near-term production.
“There is a lot of work we can undertake that will add value,” Heeley explained.
“And it is interesting that a number of institutions we speak to in regard to Jolly Ranch think it is too early to (look for a farm-in partner).
“They ask: ‘Why would you want to do this at such a low level when you can do the development yourself?’ I think it has been encouraging over the last few weeks to hear this.
“Let’s not place too much attention on the (negotiations with partners). That wasn’t the intention in the first place.
“What we want to do is make sure we can add value.
“Clearly at this stage if we were to receive some sort of offer it might not be at the right value to our shareholders. So let’s get on with it ourselves.”
Nighthawk has appointed Gaffney Cline & Associates to undertake a reserves and resource assessment of Jolly Ranch.
It is expected to be completed by late this year or early 2011 and will build on the reservoir simulation model of Schlumberger.
Nighthawk can use the equity drawdown facility any time in the next three years, though it is under no obligation to do so.
The subscription price will be at a five per cent discount to an agreed reference price determined during five, 10 or 15 trading days following delivery of a subscription notice.
Nighthawk has also granted 3 million warrants to Darwin that can be exercised any time in the next three years at a price of 20p (current price 17p). Darwin will get 1.5 million warrants exercisable at 10p if the price paid for shares is less than £5 million, or certain circumstances where the equity drawdown is terminated.
“These are the only open fees Darwin gets,” Heeley said.
“There are no other upfront fees. Over the course of the next three years of the facility they can subscribe to 3 million shares in lieu of compensation for their efforts.
“They are making this capital available to us.
“They are very supportive. Darwin is backed by Evolution and it is the third (equity drawdown) they have done. They need it to succeed as much as we do.
“We are hugely encouraged by it, they are excited. What we have to do now is use that money wisely.”
At 11.15am, the shares were trading at 17p, up 1.25p or 8 per cent on the day.
Followers of the company are heartened by the latest developments at Nighthawk.
David Hart, oil and gas analyst at City research firm Westhouse, told his clients: “The announcement removes a great deal of uncertainty regarding Nighthawk’s ability to pursue development activity at its core Jolly Ranch project.
“In addition, it does so while giving the group great flexibility in the timing and amount of funds required, which has the potential to be less dilutive and better priced than attempting to raise the funds in a single placing.
“We are also encouraged that completions and recompletions will be pursued first, as these offer the most immediate avenue to increased production levels, while also learning more about the optimal completion technique for the play.”
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