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NIGHTHAWK 22 September 2013

It is rare that I delve into the Oil Exploration sector, not least for the heightened risk, whether it be operational, geographical or political.

That said, I have covered a few over the years with mixed success and such is the nature of this particular beast.

Often at the more speculative end of investing, fortunes can be both made and lost, which makes the sector one to proceed with caution. Having said that, one such speculative situation that I feel still worth watching, is Nighthawk Energy having covered them back in April of last year at 3.6p.

 

Recent news has been positive here and after going through a number of frankly awful years after various setbacks, the company appears to be on a much sounder footing.

Operating in the Denver – Julesburg basin Colorado, an area which saw its first discovery in 1901, would appear to put the company in a somewhat safer place than others in terms of stability.

 

The shares have responded positively of late on newsflow and currently sit at 9.5p valuing the business at £89m. That may imply the shares are certainly up with events given its previous track record, poor delivery and revenues of which last year came in at just £1.9m. But, there does appear to be something of an ongoing turnaround story in place here with potential moving forward, from what are proven and potential assets.

 Following a dire performance a few years back,  former Amerada Hess and Shell man Stephen Gutteridge was drafted in as Chairman and appears to have made his mark.

Nighthawk now owns outright both the Jolly Ranch and Smoky Hill projects and recently updated that it had delivered a record month for the company with gross average oil production coming out at 1,661 bbls/day. It has also been boosted by its silverton and songbird wells both coming on stream in July of this year although production as yet appears limited.  

While the figures are notably nothing to get excited about, they do nonetheless suggest the company has stepped back from the brink of a few years back and is making progress. The key going forward will be to ramp up production increasing positive cash generation along with progressing with new drilling permits that have been applied for.

The company’s acreage is said to one of the largest land positions in the operational area and could present plenty of potential upside in the future.

Although Nighthawk remains at the more speculative end of investments that I look at, I nevertheless feel it could be worth my keeping an eye on developments here as there has been renewed interest in the area it operates from other larger players.

Interestingly, I note serial investor Peter Gyllenhammer has a large stake, along with Nordia Life & Pensions which is one of the largest financial operations in N. Europe. Broker Westhouse securities currently has a Buy note on the stock, which I will endeavour to get hold of to see what the expectations are.

On the financials the company currently has a small cash position which along with average oil prices and production levels suggests that it has sufficient funds to cover overheads and running costs. 

Highly specualtive and as always do your own research.

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