Nostra Terra Oil & Gas. Green shoots appearing?

“Nostra Terra are a small outfit with big plans” so infers Matt Lofgran the man at the helm. The company have certainly been through the Investor mill over the last couple of years , indeed if you check their performance the sp has been in a constant state of flux with huge drops and huge rallies in value being the norm. Prior to becoming CEO of Nostra Terra, in June 2009, Lofgran was with Robson Energy, latterly as Vice President of International Business Development. He launched the oil and gas, field services and coal divisions, and was responsible for extending Robson Energy’s activities into Mexico. His appointment in 2009 heralded a new direction for Nostra, shortly after investors witnessed a massive rise in the sp which began to slide back as Lofgran set about implementing changes identified in a fundamental review of Nostras’ asset base which included reviewing incumbent board members, company running costs, ditching failing assets and onerous partners such as Hewitt Petroleum who had basically failed to deliver any real value for the company. The deal hammered out was acrimonious. Lofgran refused to bend in the end Nostra took full control of Bloom and negotiated a $1.3 million dollar secured note against the HPI assets which transferred to Richfield, giving Nostra Terra the right, but not the obligation, to convert the principal amount outstanding under the note into shares of Richfield at US$0.25 per share; They also have an option to buy 6million shares in Richfield at 0.25c. They’re now heading in a new direction which over time if the CEO is to be believed can at long last bring back value and stability to the stock.

QUESTIONS:

I grilled the CEO for 90 minutes asking him question after question, ranging from why had Nostra entered into deals that to all intents and purposes amounted to a hill of beans? Texas2% Vintage Hills1.2% Nesbitt3.64% didn’t exactly amount to headline figures. How do you plan to drive this company forward? What can investors expect re’ the new assets Oklahoma/Colorado? Just how many other assets/licenses are Nostra currently looking at? The list was endless and to his credit he answered each one and never ducked the questions. It was quite refreshing to actually get answers. According to Matt, Nostra entered into Vintage Hills/Texas/Nesbitt etc to gain knowledge, with a small cash return, to get Nostra involved with one eye on the future re’ the strategy penned out in early 2010. Horizontal drilling is NOW A PROVEN TECHNOLOGY which the company plan to use where appropriate vis-a-vis new assets and potential new assets. The way forward for the company is to actively seek out then select assets that will prove cash generative thus increasing value. This is to be achieved by acquiring bigger stakes such as the 30% in Oklahoma(Bale Creek) and the 16%.25% in Colorado (Verde). The days of 1% 2% have served their purpose investors can now expect larger stakes with proven partners such as Pathfinder/plainsmen. There’s a need here for Nostra to understand that it’s all about BOPD. Good News on Verde/Colorado could help to kick-start the sp likewise Bale Creek/Oklahoma. The bopd for Verde is unknown, historical data is being used as a gauge, I don’t expect the bopd to be earth-shattering but historically it is a proven oil play with associated gas potential, if they can get 400/500 bopd or equivalent from the initial drill then Verde opens up for Nostra Multi-pay potential from different zones. They could conceivably have a share amounting to 150 barrels of oil or equivalent per day. They’re not big numbers as Verde is not a big play and Nostra are not a big company but $15,000 a day of revenue for Nostra would be transformational. Oklahoma presents another opportunity for Nostra to get the BOPD up, they are rumoured to be progressing multipule drills at Bale Creek which again could see the company increasing production with yet another multi-play potential with up to 8 drills. It’s to be remembered that these drills are targeting known oil accumulations that are now commercially viable. Another 300 barrels of oil per day or equivalent here for Nostra would again boost revenue. I don’t think investors are going to see huge numbers from Oklahoma but good numbers are possible. If you take Bloom,Nesbitt,Vintage Hills,and Texas which are at various stages of low production/workover etc, throw into the mix Colorado/Oklahoma then it looks to me as though Nostras’ strategy has gone up several gears from treading water last year and are probably targeting gross oil production for the company of 500/1000 bopd over the next 6/12 months. They are on a growth spurt attempting to increase production through an asset accumulation of low-cost high potential/payback multi plays using horizontal drilling to increase the bopd, it’s a clever strategy planned to address their lack of meaningful production. Make no mistake they are almost certainly going to increase production. What’s interesting here is that the recent Placing at 0.60p was completed at a time when Global economies are witnessing a flight to cash. Lofgran holds approx’ 5% of the company which he has diluted by 20%. That’s a pointer. A very important one. Nostra must be confident of increasing production over the next 6 months. The company are debt-free and have cash amounting to approx $4,000,000 with a secured note for $1.3 million dollars. That’s a lot of money in the bank for a tiddler. I’ve been critical of this company in the past and have always maintained a “jury is out best case scenario” I wasn’t at the time impressed with these 2% 1% deals which I think did more harm than good. The initiative was lost with ammunition gifted to the Bashers. A lot of damage caused with injunctions flying through the air. Still we all learn from our mistakes and it’s looks and feels like there’s real hope beginning to flower. I wouldn’t say they have “turned the corner” more likely that they’re “turning the corner”. Matt Lofgran hasn’t been sat on his arse for the last two years he has been actively pushing the company towards production and to his credit they are now in a much healthier condition certainly asset wise and cash wise. To raise £2 million in the current climate is nothing short of a vote of confidence.

CONCLUSION:

There’s no doubt that Nostra realised in 2009 that a change in direction was needed hence the appointment of Lofgran. Who deserves credit for not only taking the flak but persisting with the business plan to drive through his strategy for value. The company are all too aware that they must increase the bopd figures over the next 6 months or so. I think they will do it. Oklahoma and Colorado are the first big stakes in comparison to what’s gone before. I can see value here and expect the sp to rise as we get nearer to Verde/Bale Creek, both these targets don’t have as steep a decline curve as the Austin Chalk.  The importance of this is that they hold up better, hence good value. (News on Verde is on the way). They could very easily hit 2/3p on good news flow. They’re that kind of penny stock, (they’re never going to hit 100p unless they get an asset that headlines in excess of hundred million). There will be further asset buying this year on top of Colorado/Oklahoma their strategy is to grow through farm-ins and acquisitions of under-developed fields using Horizontal drilling. Thus increasing the bopd/revenue. Lofgran is a man with a plan which is now being acted upon. I think the company are worth a punt at this stage which is why I took part in the placing and could not disclose it! I never invest in companys until I am certain of my reasons for investing. I’m in for six months. Targeting 2.5p! Although I suspect that Lofgran is after 5p! Just my opinion of course.

Viva!

Dan