Nostra Terra Oil and Gas : Engineered Economics Report Mesquite

RNS Number : 5713N

Nostra Terra Oil & Gas Company PLC 21 January 2019

21 January 2019

Nostra Terra Oil and Gas Company plc

("Nostra Terra" or the "Company")

Engineered Economics Report Mesquite

Nostra Terra (AIM:NTOG), the oil and gas explora"on and produc"on company with a por&olio of assets in the USA and Egypt, is pleased to announce the ini"al results of the engineered economics report (the "Report") for the Mesquite Asset in the Permian Basin ("Mesquite").

Highlights

• · Based on the engineered economics for the ini"al 1,384 net acres at Mesquite, Nostra Terra believes the field can generate

  • o 2,400,000 barrels of recoverable oil (Estimated Ultimate Recovery, "EUR")

  • o US$21,600,000 NPV10 valuation at current strip pricing § US$28,600,000 NPV10 valuation at US$60 oil

  • o Pro forma value per acre of US$15,625 at current strip pricing § Pro forma value per acre of US$20,669 at US$60 oil

• · Per Well Economics ("PWE") based on 160-acre spacing

  • o 5,000ft (1,524m) lateral well

  • o 300,000 barrels of oil EUR

  • o US$2.5million NPV10 per well at current strip pricing § US$3.3million NPV10 per well at US$60 oil

  • o Internal Rate of Return ("IRR") of 34% at current strip pricing § IRR of 46% at US$60 oil

  • o Drill and completion cost estimated at US$2.9mm

  • o Estimated initial flow rate 265 barrels of oil production per day ("bopd")

  • o 20 year well life

  • o 100,000 barrels produced in first 3 years per well

• · Future acreage growth potential

  • o Larger area identified for further expansion

• · Field Development Plan based on ini"al assessment enables commencement of farm-in process, expected to commence shortly [can't be complete if its an initial assessment?]

Summary of key findings

Nostra Terra commissioned Trey Resources, Inc ("Trey"), a specialist operator of Permian Basin assets with specific experience in horizontal drilling across the region, to assess the economic poten"al of the ini"al 1,384 net acres Nostra Terra acquired at Mesquite (the "Ini"al Acreage") as announced on 22 October 2018. The Report does not represent audited resources butbased on Trey's analysis, Nostra Terra has initially concluded that the Initial Acreage contains 2,400,000 barrels of recoverable oil.

Using Trey's current and mid-case es"mates, Nostra Terra has assigned a US$21,600,000 NPV10 valua"on to the Ini"al Acreage at current strip pricing and a US$28,600,000 NPV10 valua"on at US$60 oil. This equates to a pro forma value per acre of US$15,625 at current strip pricing and US$20,669 per acre at US$60 oil.

Lateral well design

In preparing the Report, Trey has assumed the u"liza"on of horizontal (lateral) wells at the Ini"al Acreage to create a Per Well Economic ("PWE") model.

Trey's well design is based on a single well on 160-acre spacing. Each lateral well would be 5,000F (1,524m) long with an Es"mated Ul"mate Recover ("EUR") of 300,000 barrels of oil. Ini"al produc"on es"mated at 265 bopd. The economic life of each well is es"mated to be 20 years, with 100,000 barrels of oil produced in the first three years of each well.

Trey built its PWE model using a low, medium and high price deck. It also included an assessment of the Initial Acreage at current strip pricing.

Using Trey's mid-case es"mates at current strip pricing and US$60 oil, each well's value would be between US$2.5million and US$3.3million NPV10 and have an IRR of between 34% and 46%. The NPV10 and IRR es"mates are calculated on the basis of each well cos"ng US$2.9million to drill and complete.

A full table of Trey's PWE estimates can be viewed below:

($ in millions)

Oil Price ($ / Bbl)

Current

Strip

$45

$60 $75

IRR

EUR 10% Below Estimate

Estimated EUR at 300 MBbl

EUR 10% Above Estimate

19% 24% 29%

28% 34% 41%

• 37% 63%

• 46% 77%

• 55% 92%

  NPV10

  EUR 10% Below Estimate

  $1.0

  $1.9

• $2.6 $4.3

  Estimated EUR at 300 MBbl

  $1.5

  $2.5

• $3.3 $5.1

  EUR 10% Above

  Estimate

  $2.0

  $3.1

• $4.0 $6.0

Preparation of the Report

Over the last three months Trey has built a ground-up volumetric model of the Ini"al Acreage, u"lising petrophysical analysis and historic well results from ver"cal produc"on in the local area. Trey has used this model to create a "type curve" (ie best representa"on) and economics for 5,000F (1,524m) lateral (horizontal) wells at Mesquite.Nostra Terra will be the first operator to drill a horizontal well at Mesquite.

In its Report, Trey notes that Mesquite has similari"es to another legacy Permian Basin ver"cal play, of which Trey has experience. Trey was successful in deploying horizontal drilling and comple"on technologies at this project, which targeted the analogous forma"on and delivered an IRR to investors of 54%.

In preparing its analysis of the Ini"al Acreage, Trey created a 15 square mile volumetric map, which covers the area surrounding Mesquite. Trey conducted petrophysical analysis of this area in order to create effec"ve porosity, water satura"on and net maps to determine volumetrics (i.e. the quan"ty and extractability of oil in place). It also reviewed the historical produc"on results of c.100 ver"cal wells in proximity to Mesquite.

Potential for acreage growth at Mesquite

Following the announcement on 17 January 2019, the Company has an op"on over a further 600 acres which would increase the net acres controlled by Nostra Terra to1,984 acres. As part of its work preparing the Report, Trey has begun an ini"al review of the status of leases in the area surrounding Mesquite. This is ahead of possible future incremental leasing by Nostra Terra. Trey has made ini"al recommenda"ons to the Company's Board in respect of its leasing strategy and which areas to focus on based on the volumetric map.

Where possible, Nostra Terra's Board intends to capitalize on its first mover advantage at Mesquite and add to the Company's acreage position.

Farm in discussions

Now that the Field Development Plan is complete, Nostra Terra is beLer posi"oned to engage in discussions with poten"al industry partners about the development of the Mesquite Asset. The Company's Board is highly encouraged by the work Trey has completed. Having already received 4 unsolicited approaches from poten"al industry partners and secured addi"onal acreage (17 January 2019), the Board is confident that Mesquite is an attractive farm-in candidate.

The NPV10 and IRR models highlight the investment case for Mesquite and it is the Board's inten"on to start the farm-in process shortly.

The Company will provide further updates on progress at Mesquite in due course.

Matt Lofgran, Chief Executive Officer of Nostra Terra, commented:

"We're very excited to have such strong confirma on of the poten al of the Mesquite Asset. The work that Trey has done on our behalf has been thorough and detailed. The volumetric map in particular could provide Nostra Terra with a crucial advantage as we develop this project.

The Report we received from Trey has helped us build a compelling investment case for Mesquite. We are especially encouraged by the NPV es mates and poten al IRRs. The base case is built on conservative numbers and demonstrates a clear path to substantial value for a Company of our size.

Over the last two and a half years we have worked extremely hard to reposi on Nostra Terra. Our focus was ini ally on building a founda on of producing assets that make money in a lower oil price environment. As we have said all along, we did this so that we could then introduce much bigger projects to the Company.

The Mesquite Asset is a perfect example of what we hoped to bring to Nostra Terra, where a single well has the ability to triple our current produc on, without the associated explora on risk. Now that we have the Field Development Plan based on ini al assessment we will open discussions with poten al partners, with a view to realizing considerable value at Mesquite."

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

Competent Person Disclosure

John Stafford, a Director at Nostra Terra with over 35 years relevant experience in the oil industry, has reviewed this announcement for the purposes of the current Guidance Note for Mining, Oil and Gas Companies issued by the London Stock Exchange in June 2009. Mr. Stafford is a Fellow of the Geological Society and a member of the Petroleum Exploration Society of Great Britain.

For further information, visitwww.ntog.co.uk or contact:

Nostra Terra Oil and Gas Company plc

Tel:

[phone]

Matt Lofgran, CEO

Strand Hanson Limited

Tel:

[phone]

(Nominated & Financial Adviser and Joint Broker)

Rory Murphy / Ritchie Balmer / Jack Botros

Smaller Company Capital Limited (Joint Broker)

Tel:

[phone]

Rupert Williams / Jeremy Woodgate

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