Nighthawk develops multi-stacked oil pay on Colorado’s Eastern Plains

June 11, 2013
Nestled to the east of the jagged Rocky Mountains and the crowded population centers of the Front Range is Colorado’s Eastern Plains.

Nestled to the east of the jagged Rocky Mountains and the crowded population centers of the Front Range is Colorado’s Eastern Plains. An area known for its sparse population and farmland, the Eastern Plains may now be making another name for itself – the home to vast hydrocarbon deposits.

What’s the geologic target? The Mississippian and Pennsylvanian age formations – the same zones the industry is chasing across the Colorado border in Kansas and Oklahoma.

The upside potential for these zones being developed on the Eastern Plains in Colorado have attracted some of the industry’s most seasoned oil and gas producers. Covertly leasing properties through various land brokers, companies like Pioneer Natural Resources, Devon, and Southwestern are actively purchasing and developing properties in several counties, including: Kiowa, Cheyenne, Lincoln, Kit Carson, and Washington Counties.

Just last month Wells Fargo noted in a research update that private Midland-based E&P Chama Mineral and Resources struck oil with a horizontal wildcat in Eastern Colorado (Cheyenne County). The well reportedly tested up to 2,000 bopd from a Mississippian-age formation (permitted for the Morrow/St. Louis) from a 3,000 foot lateral. The well is about 100 miles directly east of Colorado Springs, about 40 miles from the Kansas border, and about two miles from the town of Kit Carson, Colo.

But Chama, Pioneer, and Devon are not the only ones eyeing this play. One company in particular believes the whispers of this stealth oil play on the Eastern Plains will cultivate into a wide-spread drilling pandemic. If they’re right, it could translate into a company maker for Nighthawk Energy PLC, an oil and gas company traded on the London Stock Exchange under the ticker HAWK, whose 100% owned subsidiary is Highlands Ranch-based Nighthawk Production LLC.

Nighthawk’s Smoky Hill and Jolly Ranch projects span approximately 300,000 gross acres across Lincoln, Elbert, and Washington Counties – one of the larger land positions in the area.

New Mississippian discovery

During October 2012, Nighthawk’s Steamboat Hansen 8-10 well (80% net revenue interest) struck oil marking a significant Mississippian discovery in Eastern Colorado – the first in an area that had not been drilled for over 25 years. Nighthawk says more than 50 miles separate the Steamboat Hansen 8-10 well and any other Mississippian well in the area.

The well was drilled on Nighthawk’s Smoky Hill project (roughly 90,000 gross acres) significantly de-risking the potential for future development of the Mississippian as well as the Pennsylvanian formations on the company’s acreage. The discovery area has now been designated as the Arikaree Creek oil field.

The discovery well was drilled to over 8,000 feet through the Pennsylvanian-age Cherokee formation to the base of the Mississippian age formations. From November 2012 to May 2013, cumulative gross production from the well exceeded 49,000 barrels of oil with no water. Management says the well paid back in less than three months, providing evidence of the significant commercial potential in the play.

Nighthawk spreading its wings

In addition to the Steamboat Hansen 8-10 well, Nighthawk drilled and logged four more vertical wells on its acreage during the second half of 2012. The logs from the five vertical wells showed oil-bearing potential in the Cherokee and Marmaton horizons and potential for production from multiple other zones within the geology of both the Pennsylvanian and Mississippian. In addition to the highly successful Steamboat Hansen well, two wells are producing from the Cherokee and Marmaton, respectively, and work is continuing to bring the other two wells on-line.

Before drilling these new vertical wells, Nighthawk’s team spent the first half of 2012 undertaking a workover program of older wells in the area in order to garner the geo-science and data needed to establish optimum new well locations. The workover program has also confirmed multiple stacked pay potential across Nighthawk’s acreage.

Based on the data collected from the recent five vertical wells, and the historic workover program, the company says it believes it has identified up to 10 stratigraphic targets over a 2,000 feet Pennsylvanian and Mississippian interval which includes the shale/carbonate resource plays of the Cherokee and Marmaton horizons as well as conventional targets such as the Lansing/Kansas City and Spergen horizons.

The company says the stacked pay structure significantly enhances the opportunity for Nighthawk to expand the number of drilling targets to include both vertically and directionally drilled wells, mitigating future drilling risk and enhancing well economics.

Nighthawk is currently producing commercial quantities of oil from three horizons – Mississippian Spergen, Pennsylvanian Marmaton, and the Pennsylvanian Cherokee carbonates, and further horizons are in commercial production in the immediate vicinity.

2013 plans – Developing the Arikaree Creek oilfield

As many as 10 new wells could be drilled by Nighthawk during 2013. The company has started the year off with a bang by spudding two new conventional Mississippian development wells at the Arikaree Creek oilfield near the highly successful Steamboat Hansen 8-10 well. Management told OGFJ that the wells have two clear objectives – increase production and grow reserves in the area.

The Big Sky 4-11 well has already been drilled and brought into production. Initial production rates have exceeded the company’s expectations, with the well flowing 300-400 bbls/day of oil with no water production. The Big Sky well encountered 32 feet of gross pay interval and confirms the extension of Arikaree Creek to the north-east of the Steamboat Hansen discovery well. The Taos 1-10 well spudded in mid-May 2013 and is located on the Arikaree Creek structure between the Big Sky and Steamboat Hansen wells. Given the de-risked location of the Taos well, management expects production levels from the well to be similar to Big Sky bringing total field production to over 1,000 bbls/day. Both the Big Sky and Taos wells were drilled to a total vertical depth of around 8,500 feet and in-line with Nighthawk’s focus on geo-science data collection and analysis, the wells were logged, cores taken along with pressure and volume testing.

Beyond these two wells, Nighthawk has two further drill-ready locations for appraisal of the southerly extension of Arikaree Creek. Management has confirmed that they are in the process of firming up plans to drill and fund these wells as quickly as possible.

Funding exploration and development

The work-over and new drill programs of 2012 not only provided valuable additional information on the geology and sub-surface structure that led to an important Mississippian discovery and other successes in the Pennsylvanian, they’ve also made substantial additions to production, which in turn leads to growing cash flows. Nighthawk anticipates further increases in production through developing up-hole potential in existing well-bores, as well as significant additions from new drilling. During the first quarter of 2013, Nighthawk’s average gross production was 313 bopd, a 63% increase from the fourth quarter of 2012 and with the recent drilling success, production from June 2013 is expected to exceed 1,000 bbls/day.

The success in production has enabled Nighthawk to access short-term borrowing facilities, which combined with existing cash reserves and the cash flow generated from current production levels, is sufficient to cover the company’s immediate development drilling, workover and leasing plans. With growing production and increasing free cash generation, Nighthawk’s management is confident of being well positioned to fund further rapid growth and development at Smoky Hill later in the year.

A drilling renaissance

Colorado witnessed a widespread drilling pandemic before – and not so long ago. Five years ago, north of Denver, companies began re-developing the Wattenberg Field targeting the oil and liquids rich Niobrara and Codell formations. Even though the industry developed and produced the field vertically for more than 60 years, horizontal drilling techniques and technologies allowed companies to exploit superior amounts of hydrocarbons from the same zones, and/or produce from zones previously deemed not viable for commercial production.

This story is all too similar for Nighthawk Energy. Could history repeat itself? Nighthawk says at least eight companies are currently drilling a mix of vertical and horizontal wells in the immediate area, with multiple stratigraphic targets including the Cherokee, Marmaton, Atoka, Morrow, and Mississippian horizons.