Highlands Natural Resources, the London-listed natural resources company, is pleased to announce that it has entered into a farm-in agreement in Arapahoe County, Colorado with Renegade Oil & Gas Company, LLC which will allow it to drill up to six horizontal wells in acreage prospective for the Niobrara shale formation.
The transaction entails a US$500,000 total payment from Highlands to Renegade, comprising an initial payment of US$250,000 for the right to drill the first two wells and a second payment, on commencement of drilling of the third well, of US$250,000 for the following four wells. In all wells drilled by Highlands on the farm-in acreage, Highlands will retain a 100% working interest (full responsibility for drilling and operating costs) and will receive 80% of revenue generated by these wells. The deductions from revenue comprise the royalty interests due to the State of Colorado and to Renegade under the farm-in agreement.
In parallel with negotiating the farm-in agreement, Highlands has also commenced discussions with several industry partners regarding the joint financing and development of the farm-in acreage. These discussions are now at an advanced stage such that Highlands believes that it can commence drilling by the end of 2016. Highlands is not obliged to drill any well unless and until it has secured, on terms satisfactory to it, third party financing to fund the drilling of such well and all associated testing, completion and other activities and expenses. A further announcement will be made in due course.
The farm-in acreage is bordered by ConocoPhillips leases that have been delineated by producing horizontal wells ranking among the most productive in the Denver Julesburg Basin. The presence of nearby production provides important data for analysing and projecting the productivity of the wells planned in the farm-in acreage. Specifically, Highlands is able to use Conoco’s well designs, completion methods and decline curves as analogs for its planned farm-in wells. Conoco has drilled numerous productive wells in its leases north of the farm-in acreage, including wells drilled within the township of the farm-in agreement as well as adjacent townships. The majority of Conoco’s nearby horizontal wells with optimized completion techniques produced between 50,000 to 100,000 barrels of oil in their first six months of production.
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