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Northcote (LSE:NCT), further to its announcement of 27 February 2014, has agreed a farm-out of a 30% working interest and 23.4% net revenue interest with North American Petroleum at its Zink Ranch project and also provides an initial update on its recently commenced 2014 work program.
Overview:
– Northcote has entered into a farm-out agreement pursuant to which NAP may earn an interest in workovers of existing wells and the drilling of subsequent wells targeting various Pennsylvanian objectives at the Zink Ranch project. Terms of the farm-out include:
o NAP will earn an interest in only those well sat Zink Ranch in which it participates under the farm-out agreement;
o To earn the interest, NAP must fund $600,000 of Northcote’s development costs at Zink Ranch as follows:
– Initial funding of $300,000;
– A further $300,000 as the work program continues;
oAdditionally, NAP will be responsible for its 30.0% share of costs associated with the interest it will earn in each well in which it participates;
o Pro Forma for the farm-out, Northcote’s interest in those wells subject to the farm out would be come 55% working interest (“WI”) and 42.9% net revenue interest (“NRI”) with a ratio of NRI to WI of 78%.
– In addition for consideration of $10,000 Northcote has received an assignment of a further 2.55% over-riding royalty interest (“ORRI”) in the Zink Ranch project.
oThe additional 2.55% ORRI was not part of the above farm-out, consequently Northcote’s ratio of NRI to WI at Zink Ranch has now improved to 82.6%.
– The 2014 work program has commenced with the completion of the Burkhart #1 well on the Big Hill Unit.
oFollowing a successful cement job to limit water from entering the well bore above the pay zone, the well was re-perforated in the Mississippi Chat from 3510′ to 3530′. The well has been put on pump and is now producing. Initial production rates will be announced once rates and oil cut have stabilized;
o Northcote is now working over the Big Hill 1 well at Northcote’s 51% owned Horizon project;
o Following completion of the Big Hill 1 workover, in the coming days, Northcote will move to the Zink Ranch project where it will commence the first 4 of 14 planned recompletions of existing well bores.
– Necessary preparations, permitting and surveys, for the drilling program, including the first Mathis new drill and first two Zink Ranch new drills, are underway.
Northcote’s Chief Executive Officer Randall Connally said, “The acquisition of the additional interest in the Zink Ranch project in February was fundamentally about improving the ratio of NRI to WI on this project to a more attractive 78% with the acquisition announced on 27 February 2014. Having completed that objective it was possible to bring in a partner to help fund the capital required to develop that project while allowing Northcote to manage both its exposure to any one project and its capital to ensure that the sustained and broad work program across all of our properties can proceed smoothly.
“We are now running multiple projects simultaneously across a lease position we are very proud of and believe we will deliver the results that investors expect of us. The additional over-riding royalty interest added this week will also help improve our return on each dollar of capital invested in Zink Ranch by increasing the share of revenue (the NRI) per unit of investment (the WI).
“The commencement of the first projects planned under the 2014 work programme are the first of what will be a very busy year for Northcote with up to 31 recompletions, 4 to 5 new drills and 2 to 3 fracs planned for the year. We look forward to providing regular updates on our progress as we move forward and the impact that our work is having on overall company production levels once the results from our projects have stabilized. We continue to be confident in hitting our 250 BOE/d target this summer.”
