Nostra Terra Oil & Gas

Nostra Terra Oil & Gas (LSE:NTOG) has had a tortuous listing on AIM. It’s been difficult but those who have stuck with the company could be about to reap the rewards in 2013. I’ve spoken, at length, to many senior figures in the company including CEO Matt Lofgran. My research indicates that there’s a potential 300% gain on the cards in 2013 which is I why I own the shares personally. Of course investing in tiddler oil stocks is fraught with danger so those of you with a risk aversion should turn away now. For those of you with a stiffer constitution then carry on.

It’s not all been plain sailing for Nostras’ Lofgran who took on the challenge in the summer of 2009, to restructure and take on a task that was to all intents and purposes a poisoned chalice. Nostra had to come out with fists flying (amongst other problems) to beat down a concerted Internet Basher campaign lead by the now notorious “Gene Savin” who was hunted down by an ex-MI6 agent on the company’s’ behalf. It’s to the company’s’ credit that it never shirked its responsibilities to share-holders and exposed the Basher campaign for what it was. The same can be said of Nostras’ tenacious grip and pursuit of Richfield Oil & Gas. (More of which later) These small oilers are only ever as good as their management & it’s management that you are investing in. The biggest single failure of small cap stocks is Management who in 9 times out of 10 just turn up for their pay & expenses. Lifestyle companys & corporate greed are the norm on the AIM Market. Don’t be fooled and always de-risk when in profit. The most you can hope for is a Board that actually rolls up its sleeves, mucks in & gets its hands dirty.

The Nostra Management touts the business as a “fast-growing exploration and production company focused on emerging plays within established hydrocarbon regions of the United States.” For those that have supported the company this couldn’t be further from the truth. Nostra Terra is a small cap tiddler that has been kicking around the Alternative Investment Market since July 2007. Their growth has been anything but “fast”. It has been a tortuous, difficult, three steps forward two steps back progress which has slain many an investors dream. But now, finally, there’s light at the end of the tunnel as Lofgran aided by Alden McCall (Geologist) finally drags the company out of the dark ages and into the light.

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2013 heralds the birth of “New Nostra” a debt free, cash generative, asset rich tiddler that looks set to rise through-out 2013 as the company finally homes in on finally reaching its first production target of 125bopd. (Which is by far & away superior to that of fellow tiddler and chat room darling Magnolia Petroleum (LSE:MAGP)

Nostras’ current good fortune is tied into the US upstream industry which is undergoing wholesale change, prompting predictions that Uncle Sam could surpass Saudi Arabia to become the world’s largest oil producer by 2017. Nostra has quietly gone about aligning the company to take full advantage of what Lofgran terms a “renaissance”

Its recent alliance with Ward Petroleum on drills in Oklahoma known as the “Chisholm Trail” prospects could be about to pay out big time for the tiddler. Nostra has a 20% interest in Wards’ position in the play. That means that the current 4 well drilling campaign is likely to be further extended. These are the initial 4 drills. The catalyst for this dramatic transformation is the surge in technological innovation driven by shale gas whose techniques are now being adapted successfully by Ward & Nostra on the Chisholm Trail Asset.

Nostra Terra’s strategy is to align itself with proven “tight” oil drillers & companys’ employing all of the shale gas technological innovations, including horizontal drilling, 3D seismic mapping, sophisticated log suites and multi-stage well completions. This allows them to target and exploit compartmentalized reservoirs that were either under-produced, under-valued or completely overlooked when the original vertical wells were drilled in these mature fields. It also gives them access to the full data set of logs on each and every drill thus allowing them a better understanding of the geology in their current area of operations which Lofgran intimates will lead to Nostra eventually becoming operator on its own wells thus dictating its own destiny. Nostra believes that it has now established a solid strategic platform from which to grow. It sees abundant opportunities to purchase larger assets and working interests, both operated and non-operated, within its target areas. Much of this has to be credited to Alden McCall, Nostras’ tight-lipped action speaks louder than words go getter.

Today Nostra confirmed via RNS what we on the BrokerManDaniel site already knew. Chisholm 3 & 4 are on early test production (at the time of writing). Typically wells in the area have been averaging approx’ 200 boepd with some exceeding this significantly. This could herald the rise of Nostra in 2013.

Current Assets

Nostra acquired a 2% working interest (WI) in an Austin Chalk redevelopment well in Texas in June 2010. The well confirmed the company’s ability to identify and obtain undervalued assets by achieving a 35-day payback and a 195% profit on its sale one year later.

In May 2011, Nostra Terra assumed operator-ship of, a 100% WI in, the Bloom property in Kansas. The wells continue to produce with minimal decline.

Through 2011 and 2012, the company made three larger purchases – a 16.25% WI in Colorado’s Verde prospect, and WIs of 10% and 30% respectively in the Warrior and the multi-pay Bale Creek prospects, both of which are to be found in Oklahoma.

Each prospect in which Nostra Terra now participates holds the potential for multiple offset wells. Since the offset wells are de-risked by the first, each of the several prospects holds the possibility of multiple offsets. As the prospects multiply, geometric growth in production should follow.

The first Verde well, completed in September 2011 exceeded expectations during the initial 30-day production period and has served to de-risk the property. After reaching pay-out in nine months, the first well continues to be a strong performer. The second Verde well is now being drilled and tested while additional leasing is being sought to expand the size of the prospect. Recent production announcements show the commercialisation of both the Bale Creek and Warrior prospects.

In September 2012, Nostra Terra entered into an agreement with Ward Petroleum for the Chisholm Trail prospect, a multi-well, horizontal drilling project in Oklahoma. The prospect area is large in size and a leasing programme is ongoing. Nearby drilling has resulted in several wells producing in excess of 200 boepd after the first several days of ‘flush’ production. Nostra Terra owns a 20% interest in this active programme within which working interests in the individual wells vary. Based on results from neighbouring wells, the company anticipates this prospect has the potential for geometric growth of wells, delivering rapid payouts and strong production levels. Nostras’ Alden McCall refers to the Chisholm Prospect as “A real oil play” Results from the initial wells are exceeding expectations and production at the Chisholm Trail Prospect is expected to propel Nostra Terra’s revenues significantly higher as it seeks to double & treble current production (50bopd) up to and over 125bopd in H1 2013

Nostra is also owed a $1.52 million dollar (and rising) secured loan note by Richfield Oil & Gas for a deal that turned sour in April 2011. A quick check of county court records and various filings associated with the collection reveals how cute Lofgran was in the negotiation. The Note is secured on both producing and non-producing assets while warrants were also extracted by Nostra. It should be noted that Richfield has now listed on the OTC-markets under the ticker ROIL which means that in all probability the loan note will be paid up in full in H1. The chances of a newly listed company being foreclosed on are slim to say the least. Nostra Terra also has 600,000 warrants @ $2.50 per share (split adjusted) which expire on 30 Sep 2013.(If Richfield hits $3.00 then this equals $300,000, if $4.00 then = $900,000, etc.) I’d expect Nostra is fully aware of this & will exercise its warrants as soon as there’s a realisable profit. Take the money & run.

Nostra Terra is also developing its own play where it will establish a strong acreage position and generate multiple prospects. McCalls’ strategy is to acquire quality over quantity rather than have acreage left for “Goat Pasture” The company will initially retain 100% ownership of leases within the play. Leasing and other pre-drilling activities will continue throughout 2013, with the first wells expected to spud in the first half of this year. There’s much more to push the share price than Chisholm 3 & 4. I’d expect a Chisholm 5 drill. Increasing bopd, revenue & further news on new assets a distinct possibility.

Increasing Revenues

Revenues for the six-month period to June 2012 were £162,000, an increase of 69% over the previous period. During the same period gross profit increased by 280% from £15,000 to £57,000. Sales for 2012 as a whole are expected to increase significantly and continue to rise rapidly in 2013, most especially from the Chisholm Trail prospect and don’t forget the effect of the Richfield Note which is below the radar. A $1.52 million dollar infusion will certainly add a smile to market watchers when the note’s settled in the first half of 2013.

Nostra Terra is well positioned to further accelerate profitable growth. It is fully funded on its existing development commitments and has more than $1.3 million cash in hand with access of up to £10 million (SEDA) for further expansion. Nostra is totally Debt-Free.

At 0.525p the market capitalisation is a mere £12.8 million. My 2013 target price is 2p.



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