Operational and Corporate Update

8 June 2020

 

Nostra Terra Oil and Gas Company plc

("Nostra Terra" or the "Company")

 

Operational and Corporate Update

 

Nostra Terra (AIM: NTOG), the oil & gas exploration and production company with a portfolio of development and production assets in Texas, USA, is pleased to provide an operational and corporate update.

 

Highlights

·    Significant improvements in cashflow:

o Over 60% reduction in monthly overheads, versus 2019 monthly average

o Lifting costs at Pine Mills reduced from c.$23/bbl down to c.$16/bbl

·    Additional 1,600 bbl storage added to Pine Mills to provide flexibility on sales 

·    Discovery Loan extended until 1 April 2022

·    Robust hedges remain in place - $48,000 received for May contract

·    Progress at Pine Mills farmout with decision on additional interest extended

 

The Board has performed a thorough review of all aspects of the business, including all corporate and operational costs. As a result, further reductions in overhead costs have been achieved.

 

In addition, whilst the Directors consider Nostra Terra to already be a low-cost operator in Texas, the Company has been able to reduce lifting costs even more at Pine Mills over the last couple of months, from c.$23 per barrel down to c.$16 per barrel.

 

These cost reductions have yielded a significant improvement in cash flow.

 

Reduction in Overheads

Nostra Terra has now achieved a reduction in monthly overhead costs of over 60% versus the monthly average during 2019 (this excludes one-time expenses already incurred - in particular, costs dealing with the two requisitions initiated by one of the Company's shareholders earlier this year). Savings have been made across many aspects of the business, including significant cuts in remuneration to the CEO (per RNS of 8 April 2020) and to the non-executive directors. Both non -executive directors have now agreed to be paid in shares, at a time to be determined, in lieu of 3 months of their annual cash fees. The remainder of the non-executives fees in cash is currently being deferred to be settled at a time to be agreed, further aligning the interests of directors and shareholders.

 

Additional improvements in the field are described below.

 

Discovery Energy Limited Loans

The Company has reached an agreement to restructure existing loans with Discovery Energy Limited ("Discovery") (the "Loans"). The Loans, of which £233,481 is, in aggregate, outstanding as at 1 June 2020, and which was repayable on demand, has been extended to 1 April 2022, bearing an interest rate of 10% per annum, accruing monthly, and consolidated into one loan (the "Discovery Loan"). An initial payment of £10,000 has been paid to Discovery, with payments of £5,000 per month to be made by the Company until 1 April 2022, with the balance outstanding due on or before that date. The structure was agreed with careful consideration of the group's cashflow requirements, in order to help the Company achieve its immediate goal of reducing monthly costs as much as possible.

 

A fee of £24,000 (the "Loan Fee") is payable to Discovery as consideration for agreeing to reschedule the Loans, consolidated into the Discovery Loan, until 1 April 2022. The Loan Fee, of which £7,199 has been settled from the initial payment of £10,000, will be further settled from the monthly repayments following repayment of accrued interest with any balance being used to repay the principal amount of the Loan. The amount of the Loan Fee due and payable shall be reduced in the event that any amount of the Discovery Loan is repaid early in the proportion of the amount repaid to the total amount of the Discovery Loan.

 

Further, the Company owes to Mr Ainsworth and Discovery, in aggregate, £85,292 in outstanding director and consultancy fees (the "Additional Fees" and, together with the Loan Fee, the "Fees"). The Additional Fees shall be subject to the same interest rate as the Discovery Loan and shall be repayable on or before 1 April 2022 as per the Discovery Loan. Based on the above repayment profile, and assuming no early repayments, the Company expects to owe Mr Ainsworth and Discovery, in aggregate, £282,580 at 1 April 2022.

 

Related party transaction

 

Discovery is a vehicle controlled by Mr Ewen Ainsworth, who served as a Director of the Company during the last 12 months. Accordingly, the restructuring of the Loans and the payment of the Fees are deemed to be related party transactions under the AIM Rules for Companies.

 

The Directors of the Company consider, having consulted with the Company's Nominated Adviser, Strand Hanson Limited, that the terms of the restructuring of the Loans and the payment of the Fees are fair and reasonable in so far as the Company's shareholders are concerned.

 

Improvements at Pine Mills

During the lower oil price environment, the Company has moved quickly to adapt and make further operational changes to both lower its operating costs as well as increasing storage capacity.

 

In the past few weeks, the Company has increased field storage capacity to allow for greater production and inventory flexibility in a volatile price environment. Four four-hundred barrel storage tanks have been installed in the field; these tanks were purchased at attractive prices during the previous oil price downturn in 2016, hence no additional capex was required. This 1,600 bbl capacity provides Nostra Terra with more flexibility in choosing when to sell its produced oil in order to maximize the received price.

 

All field interventions are being screened for their economic viability in the current low oil price environment. Some production was temporarily suspended from some of the higher cost and less productive wells. Lease operating expenses, including staff numbers in the field, have been reduced to achieve significant cost savings. This allows a focus on the more productive wells with more robust economics at lower oil prices (i.e. $20 to $40 per barrel).

 

Additionally, as announced on 22 April 2020, the Company completed a farmout encompassing 80 acres of its 2,400 acres at Pine Mills where Nostra Terra owns 100% working interest. This provides Nostra Terra with a 25% working interest in the next well once drilled, and which will be drilled at no cost to the Company. The Company also retains the right to participate in an additional 10% working interest.  Given the constraints to work and travel the seismic and geology review did not take place until the middle of May. Hence Cypress Mineral LLC ("Cypress"), the farminee, agreed to allow a formal decision to be made 30 days from that time, which is  19 June 2020. The Board remains excited about the drilling plans that can allow multiple wells and the progress Cypress is making towards drilling. A further announcement will be made in due course.

 

Hedges

Hedges, with strong counter-party, BP Energy Company, remain in place for 2020 and continue to provide robust support to offset lower oil prices. $48,000 was received for the May contract. Nostra Terra is guaranteed $55.12 per barrel for 1,500 barrels per month for the remainder of year.

 

Change of registered office address

The Company announces that its registered office address has changed, with immediate effect, to Salisbury House, Suite 425, London Wall, London EC2M 5PS.

 

Matt Lofgran, Nostra Terra 's Chief Executive Officer, said:

"The combination of these improvements shows the Company has taken prudent steps in the last year and has continued taking action, making a significant improvement to cashflow. By adapting swiftly to the lower oil price environment that we're now experiencing, we benefit now and anticipate benefiting further as prices hopefully continue to improve to more normal levels. At the same time, the Company is planning to increase production through a combination of existing assets, such as the farm-out at Pine Mills and assessing workovers at Pine Mills, and screening for new assets both internationally and in our core area."

 

 

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

 

For further information, contact:

 

Nostra Terra Oil and Gas Company plc Matt Lofgran, CEO	Email:	+1 480 993 8933
Strand Hanson Limited (Nominated & Financial Adviser and Joint Broker) Rory Murphy / Ritchie Balmer / Jack Botros	Tel:	+44 (0) 20 7409 3494
Novum Securities Limited (Joint Broker) Jon Belliss   Lionsgate Communications (Public Relations) Jonathan Charles	Tel:     Tel:	+44 (0) 207 399 9425     +44 (0) 7791 892509