Exploration & Production
Northcote Ups Interest at Zink Ranch Project; Begins 2014 Development
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Northcote has increased its working/net revenue interest in its producing Zink Ranch Project as well as reported the commencement of its 2014 development programme.
W.I. Increase
Northcote will increase its WI in Zink Ranch (formerly called North Cleveland) to 85% (66.3% NRI) for cash consideration of $850,000.
The relative increase in WI is 9% but the increase in net revenue interest is 22.8%, which results in a higher return on future development capital spent on that property
Development Program
A continuous 2014 development programme will commence next week, across the entire Northcote portfolio, including Zink Ranch and Horizon. The programme is designed to increase production beyond the 250BOEPD target and substantially increase P1 producing reserves.
It will involve:
- The drilling of 4 to 5 new wells;
- The workover or recompletion of up to 31 existing well bores;
- The fracture stimulation of at least 2 to 3 existing horizontal wells; and
- Northcote to initially issue £1,200,000 zero coupon secured convertible loan notes with an exercise price initially set at 1.1pence (45% premium to the share price as at close of business on 26 February 2014).
The proceeds from the initial issue will be applied as follows:
- Funding the acquisition of the additional interest in Zink Ranch; and
- Funding the initial development programmes across our portfolio.
Northcote's Chief Executive Officer Randall Connally said, "The work programme we are launching next week is the result of actions taken in 2013 to increase the leasehold footprint of Northcote in our core operating areas in Osage and Kay Counties, Oklahoma. This development programme will drive production growth in 2014 as aggressively as we grew our lease position in 2013 through a broad front of activities on multiple projects at the same time. Additionally, the enhanced pace of activities will allow us to realise better access to necessary equipment and suppliers as well as to realize cost efficiencies in the execution of the programme. The 2014 development programme will be a continuous and ongoing programme intended to exceed our previously set target of 250 BOEPD.
"The additional interest in Zink Ranch increases the return on development capital at that property by increasing the net revenue interest per point of WI. The purchase increases the relative amount of cost (WI) that we are responsible for by 9% but importantly our net revenue interest in the project has increased by 22.8%, resulting in a higher return on every dollar of future development capital spend starting with the forthcoming 2014 work programme.
"The Darwin financing allows us to extend the 2014 development programme and secure the Zink Ranch acquisition during this important phase of Northcote's development as a company. As 2014 progresses, Northcote intends to pursue non-dilutive commercial bank financing as well as partnerships and joint ventures with industry participants to accelerate development of our properties. As Northcote's operating capabilities continue to develop, partnerships with industry participants offer the opportunity to enhance profitability of Northcote's properties and realize cost and revenue efficiencies and will be an important and ongoing part of our strategy."
Zink Ranch Project (formerly North Cleveland)
As announced on 14 October 2013, Northcote originally acquired a 78% WI and 54% NRI in Zink Ranch, covering an area of 1,520 gross acres in Osage County, Oklahoma. The Company has agreed to acquire an additional 7% WI and 12.3% NRI for a cash consideration of US$850,000 bringing its total interest at Zink Ranch to 85% WI and 66.3% NRI, which increases the return on development spend at that property. Completion remains subject to remittance of funds which is expected to be on or before 28 February 2014.
The Board is very pleased to have increased its interest in the project on favourable terms prior to the commencement next week of important development work at Zink Ranch, which it views as one of its key properties. The Board believes that this asset alone is capable of generating multiple increases in production from its current level of circa 30BOEPD gross (20BOEPD net).
Furthermore by increasing its interest in the field, the Company has removed a partner that was not 100% committed to its plans for the field and Northcote is now able to execute its planned programme at a pace that it controls.
Commencement of 2014 Work Programme
The Company is pleased to announce that it will commence its 2014 development programme across all of Northcote's core Oklahoma properties, including Zink Ranch, Horizon, Mathis, East Blackwell and the Oklahoma Energy leases, next week.
The programme will include:
- The drilling of 4 to 5 new wells;
- The workover or recompletion of up to 31 existing well bores; and
- The fracture stimulation of 2 to 3 existing horizontal wells.
The fourth fracture stimulation of the 2013 work programme and the Mathis well, both delayed by severe winter weather, have been incorporated into the 2014 work programme.
The 2014 work programme will be the first continuous programme that Northcote has executed highlighting its evolution since listing in 2013. The programme will start in the first week of March 2014 and continue until its completion expected to be in Q3 2014. The continuous pace of development will allow for improved access to equipment and services and result in more timely execution of projects and cost efficiencies. Regular updates on completion of activities and realised production growth will be provided on an ongoing basis throughout the execution of the programme.
Northcote's share of the capital expenditures for the forthcoming work programme will be fully funded from the proceeds of the convertible loan financing, existing cash resources and the cash flow from operations as well as other non-dilutive capital.