No Pain, No Gain: Nighthawk swoops to conquer in difficult times

The No Pain, No Gain portfolio has suffered a number of uncomfortable reverses since the bottom fell out of the small-cap end of the stock market. So perhaps I can be forgiven for singing the praise of Nighthawk Energy, an AIM-traded group recruited last summer.

The shares joined at 44p. Last week they topped 100p. As frequently happens when a price milestone is breached, the shares promptly slipped back. But I believe that once the inevitable profit-taking is completed they will resume their upward flight.

Nighthawk, a US-focussed oil and gas player, arrived on AIM in the early part of last year at 25p a share, raising £10m. Experienced oilmen, led by chief executive David Bramhill, are behind the business, born only in 2006.

From the outset they concentrated on areas of the US that years ago were renowned for their oil and gas riches. But fields were abandoned, as extraction became increasingly difficult. With energy prices then a mere ripple of today's inflated levels, the US oilmen found their efforts becoming less and less profitable.

With the benefit of advanced technology Nighthawk, together with its US partner, Running Foxes, felt some of the abandoned pitches deserved another whirl. Today the company has a series of intriguing developments. I suspect more are in the pipeline.

Of course, there's many a slip 'twixt cup and lip. I have always been sceptical of small exploration groups and Nighthawk is the first to grace the portfolio. I must confess it was the management rather than the American dream that prompted its recruitment.

Gas is already flowing from the group's Cisco Springs site in Utah. In recent times, the development has been increased from 14,000 to 24,000 acres and Nighthawk's interest from 37.5 to 50 per cent. It is currently producing one million cubic feet of gas a day and output could hit four million a day by the end of the year when oil could also be on tap.

In his interim report Bramhill said: "Eighteen months ago the project was at an early stage with little drilling activity having taken place for decades. The ongoing drilling and development programme has advanced the project significantly and progress has been extremely encouraging."

A firm of oilfield consultants is currently examining the Cisco venture. An earlier survey put the value of the field at around £125m. A new appraisal is being prepared and there appears to be every chance the Nighthawk share could exceed the group's £200m capitalisation.

In a sense, that would mean the rest of the US adventure is in the pot at no charge. Yet it is anything but worthless. This month Nighthawk said its 50 per cent-owned Jolly Ranch exploration area in Colorado had shown promising results. At two wells, hydrocarbons have been encountered and casing has been set to test them. Normally, such action is not taken unless the driller is confident the well will go into production. Further land next door to Jolly Ranch has been acquired.

Among other developments there could be excitement over the Buchanan and Worden field in Missouri where Nighthawk and RF share ownership. It is next door to an 80 per cent-owned Nighthawk site, the Devon Oilfield in Kansas, where it is thought some 10 million barrels of oil lurk. There are hopes that Buchanan may also be oil rich.

Nighthawk and RF seem to have established a successful alliance. A leading US oilman, Steve Tedesco, runs RF. Most of the Nighthawk team was involved in takeover victim Oil Quest Resources. Bramhill and the other executive director, Joe O'Farrell, were on the board. Former OQR chairman, Michael Thomsen, is a director of some Nighthawk subsidiaries. He has been involved in exploration in 33 countries in a 31-year career.

Early this year, Nighthawk raised £14m, placing shares with institutional investors at 46p through stockbroker Hanson Westhouse. It is still in funds with some £14m in the bank.

In its last report, the group was in the red – an interim loss of £474,000. There are hopes it will soon be profitable, which would be a remarkable achievement for a fledgling oil and gas group. Too many exploration minnows appear to soak up cash but make little progress. Nighthawk seems to have made significant headway in a relatively short time.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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