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Northcote Energy has issued an update on its interests in Oklahoma which cover 6,058 net mineral acres, including an overview of its 2014 drilling/frack and well workover programmes focused on significantly increasing production and proving up the reserves on its leases, which are primarily targeting the producing Mississippi Lime Formation.
Overview:
– 2013 saw the Company successfully achieve its stated objectives of increasing production to over 100 net BOEPD and also expand its oil and gas portfolio to over 6,000 net mineral acres. The impact on the Company’s portfolio since listing in January 2013 was significant:
– Over 40 producing wells up over 300% from 12 producing wells at listing
– Proven net reserves of 2.49 million BOE increased from 0.94 million BOE at listing. Further reserve potential exists from properties still to be engineered
– Over 40 potential drilling locations with over 20 new drilling locations added in Osage and Kay Counties since listing
– Over 14 low cost workover opportunities added since listing
– At least 6 remaining fracture stimulation opportunities of Mississippian wells
– 2014 focus is to monetise the value across recently acquired acreage:
– On track to hit 250 net BOEPD by 31 July 2014 – up from 100 BOEPD level achieved in 2013
– At least 3 new wells to be drilled in 2014 including the first Mississippian well at Horizon and new wells at Zink Ranch
– Workover of at least 14 existing wells and the continuation of the fracture stimulation programme at Horizon, commencing February 2014 with the frack scheduled for December 2013 delayed due to adverse weather
Northcote’s Chief Executive Officer Randall Connally said, “2013 saw us significantly expand our acreage, proven reserves, well count, production and future development opportunities in both Osage County and beyond at a relatively low cost. Having achieved our stated ambition of increasing the operating footprint to over 6,000 acres, in 2014 Northcote will focus on the considerable development potential on our leases and in the process crystallise the value of our expanded asset base through higher production and internal cash flow levels. Over the coming 12 months we will implement a number of initiatives in Osage County including drilling, workovers of existing wells, and frack programmes, as we look to hit our July 2014 250 BEOPD production target, and build on our proven reserves which currently stand at 2.49 million BOE.”
Osage County Properties:
Northcote holds approximately 4,620 net acres in Osage County, which is comprised of four core properties, these are:
-Horizon Project (50.15% WI and 39.8% NRI);
-Mathis Project (70% WI and 54.6% NRI)
-OKE Project (100% WI and 41.25% NRI); and
-Zink Ranch Project (formerly North Cleveland) (78% WI and 54% NRI)
This provides the Company with interests in 36 producing wells across the county which together account for 90% of the Company’s total production.
During 2014 the Company’s first target is to achieve 250 net BOEPD of production by 31 July 2014 and Northcote’s planned work programme is focussed on achieving that target. The planned programme includes the completion of numerous production-enhancing workovers, the continuation of the fracking campaign and also the completion of new well drilling, where the wells will be targeting either the Mississippian or other shallower zones.
Northcote has a number of ongoing initiatives which include the fracture stimulation of the Moursand A-2, the fourth well in its 2013 programme. This was originally intended to have been initiated in December 2013 but was unfortunately delayed because of the severe winter ice storms that impacted much of the mid-west and east coast regions of the United States. This fracture stimulation is being rescheduled for early February 2014.
Furthermore the Company also elected to participate in the deepening of the Burkhart#1 well on the Horizon Project to target the Mississippi Lime formation. Having originally been drilled to and produced from the Mississippi Chat formation, the well successfully reached its target depth of 4,226 feet and is to be completed in Q1 2014.
The major focus of Northcote’s 2014 work programme will be at the newly acquired Zink Ranch project where at least two new wells will be drilled in 2014 in addition to 14 workovers of existing well bores. Additionally, the Company intends to complete the previously announced Mathis well and possibly drill one additional well on the Mathis lease in 2014. Finally, the Company is assessing the potential to drill one new well on the OKE properties following completion of an infrastructure upgrade currently underway on these properties.
The farm-out of up to 70% of the Company’s working interest in the Mathis well has been increased slightly, with the Company now seeking to farm-out up to 80% of its working interest in the well. This process is well-advanced with the majority of the targeted working interest having been allocated to farm-out partners. The Company expects that the farm- out will be completed and the well will spud in Q1 2014.
After completion of the Moursand A-2 frack, six horizontal wells located within the Osage County Properties remain unfracked and with this in mind, Northcote intends to continue the frack programme during 2014, which it expects to deliver cost-effective incremental production.
As mentioned above, Northcote is also currently undertaking improvements to infrastructure at the OKE Project focussed on improving the long term development potential of the asset. This work is progressing well and following its completion, expected by mid-February 2014, the site will have a significantly enhanced production capacity. The infrastructure upgrade includes installation of additional electric lines, additional pipeline capacity to manage increased volumes of both natural gas and salt water for disposal and workover of the salt water disposal wells used to dispose of produced water volumes from producing oil and gas wells. As a result of this upgrade work, production at the OKE project was disrupted during Q4 2013.
The Company has continued to produce at approximately 100 BOEPD despite the OKE project upgrade work. Approximately half of the wells will be restored to full time production at the end of January 2014 with the remainder back in full time producing status in February 2014. The Company plans to refinance the BlueRock facility during the course of 2014, the completion of which will improve Northcote’s net production from the OKE project. Northcote expects to realise a higher overall production level for the Company as a whole when the OKE properties are restored to full time production and once the effect of the 2014 work programme continues to increase our production.
The company’s operations outside of Osage County include working interests in three properties namely; the East Blackwell Skinner Sands Unit (‘East Blackwell’) in Kay County (80% WI); the Woods County Project (0.125% WI); and the South Weslaco Project in Texas (25% WI).
The South Weslaco project in Texas generates material revenues net to the Company. The asset is performing in line with expectations and with this in mind, there is no work planned at this site in 2014.
The Directors believe East Blackwell in particular has the potential to provide significant value through the implementation of relatively low cost initiatives. Minimal expenditure to improve the efficiency of the existing wells on the site has already doubled production to 6 BOPD since the project was acquired which contributes positively to the Company’s overall cash flow. Combined with the proceeds from the farm-out completed in tandem with the acquisition, it is expected Northcote will earn back the original cash investment before the end of 2014.
