10 March, 2016

 Water Flood Approval and Year End Reserves Update

Nighthawk, the US focused oil development and production company (AIM: HAWK and OTCQX: NHEGY), announces an update to the water flood project approval hearing and also reports the 31 December 2015 year end reserves.

Water Flood Project Approval

As previously disclosed, the Company made a filing seeking approval of its planned Arikaree Water Flood Enhanced Oil Recovery Project (the “Project”) with the Colorado Oil and Gas Conservation Commission (the “COGCC”), the state oil and gas regulatory body.  On 8 March, 2016, the COGCC approved the Company’s application for the Project, subject to the Company  obtaining  80% approval of the non-working interest owners within the next six months, using an agreed upon revenue allocation method.  The Company believes that the required approvals will be obtained in the next few months. A further announcement will be made in due course.

As disclosed in the Company’s announcement of 23 October 2015, the Company’s preliminary estimates for the total Oil In Place (“OIP”) in the field potentially may be up to 16.6 million barrels.  As shown in the table below, the estimated ultimate recovery under the water flood project ranges between 30%-40%.  This compares to the current 17% recovery experience from the conventional wellbore production. 

  

Range
(in Mmbbls)

Low

High

Estimated total OIP

16.60

16.60

Estimated Recovery

30%

40%

Total Estimated Recovery

4.98

6.64

Production to date (est.)

        (1.50)

        (1.50)

Estimated remaining recoverable reserves

3.48

5.14

PDP currently booked in reserve report

         (1.40)

        (1.40)

Estimated incremental recoverable reserves

2.08

3.74 

 

 During the course of preparing the Company’s regulatory filing, the Company engaged a third party engineering firm to make estimates using sophisticated, predictive reservoir models of the OIP, the ultimate recoveries of oil associated with the water flood project and how the oil would be produced once implemented. 

The final estimates are closer to the high side preliminary estimates shown above.  The original estimate for the high end of the range was 40% estimated recovery resulting in 6.64 million barrels, whereas the third party simulation model puts the estimated recovery at 38.8% and 6.57 million barrels.  This engineering projection shows monthly production rates to more than double the current production under primary recovery for up to the next 5 years.  The Company will be posting on its website, shortly, a presentation which provides a more detailed explanation of the Project and its benefits.

As detailed in the table below, the Company’s external reserve engineers have estimated the low side of the incremental reserves from the water flood project as Probable Reserves at 31 December 2015.  The Company expects these reserves to be reclassified to the Proved Developed Producing category once capital for the Project is deployed and the Project becomes operational.

The company presentation for the Arikaree Water Flood Enhanced Oil Recovery Project can be found at: http://www.nighthawkenergy.com/wp-content/uploads/2016/03/Arikaree-Creek-Presentation-March2016.pdf

Year-end Reserves

The Company has finalized its year-end reserve report and has received the audited 2P reserve report from the Company’s independent reserve engineering firm, Ryder Scott Company LP under SPE standards.  The reserves were estimated using current production, anticipated decline curves, actual operating costs and an average realized price of $43.25/Bbl.  The reserve volumes, in barrels, are presented below:

 

31 December 2015

31 December 2014

Proved Developed Producing

1,405,800

1,315,066

PUDs and PDNP

                  0

      524,708

     Total Proved Reserves

1,405,800

1,839,744

Probable Reserves (1)

1,423,015

                  0 

   Total Audited Reserves

2,828,815

 

1,839,744

Possible Reserves (2)

807,000

0

 

(1)   Probable reserves represent water flood project response reserves around existing wellbores and projected in-fill wells

(2)   Possible reserves are management estimates of additional water flood potential using the low range of estimated recovery

The decrease from prior year total proved reserves is due to reserves associated with Proved Undeveloped (PUD’s) and Proved Developed Non-Producing (PDNP) categories which have been deemed uneconomic at current pricing.  The increase in Proved Developed Producing, which is net of annual production of approximately 650,000 gross barrels, is due to better than projected production results in existing wells.

Rick McCullough, Chairman of Nighthawk, commented:  “The regulatory approval of the Arikaree Creek water flood project is a major accomplishment for the Company.  The approval of this project, which was envisioned by Chuck Wilson and his team a couple of years ago, validates the quality of the technical analysis and the merits of the project for Nighthawk and the field’s landowners. We hope to complete the project later this year once we obtain the 80% landowner approval levels.  Once the project is completed, we expect to see a significant increase in daily and annual production as well as an increase in field reserve levels. This project is ideal for these market conditions and is the top priority of Nighthawk.”

Chuck Wilson, Chief Operating Officer of Nighthawk, who has over 33 years of experience in the oil and gas industry and meets the criteria of qualified persons under the AIM guidance note for mining and oil and gas companies, has reviewed and approved the technical information contained in this announcement.

Glossary

 MMBLS – Million barrels of oil

Proved Reserves – Proved reserves are reserves that have a 90% chance of being higher than estimated and a 10% chance of being lower.  Proved reserves include PDP, PDNP and PUD reserve classifications

PDP – Proved Developed Producing reserves are expected to be recovered from completion intervals (oil producing zones) that are open and producing at the time of the estimate

PDNP – Proved developed reserves that can be expected to be recovered from zones behind casing in existing wells, or from zones that shut-in for market conditions, pipeline connections or mechanical reasons and are capable of production, but the timing is uncertain.

PUDs – Reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion or opening of new zones of production.

2P – Proved and Probable Reserves

Probable Reserves – Probable reserves are reserves that have a 50% chance of being higher than estimated and a 50% chance of being lower

Possible Reserves – Possible reserves are reserves that have a 10% chance of being greater than estimated and a 90% chance of being smaller

SPE – The Society of Petroleum Engineers


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