Highlands Natural Resources farms into DJ basin acreage

LONDON -- Highlands Natural Resources has entered into a farm-in agreement in Arapahoe County, Colo., with Renegade Oil & Gas Company, which will allow it to drill up to six horizontal wells in acreage prospective for the Niobrara shale formation.

The transaction entails a $500,000 total payment from Highlands to Renegade, comprising an initial payment of $250,000 for the right to drill the first two wells and a second payment, on commencement of drilling of the third well, of $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 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.

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 analyzing 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 bbl of oil in their first six months of production.

To put this in context, a well producing more than 50,000 bbl of oil in its first six months would rank among the top 12% of all horizontal Niobrara wells based on 2,943 wells with sufficient data history as of May 2016. The Niobrara shale is the fourth-largest tight oil play in the U.S. (ranked by current daily oil production), and produces approximately 371,000 bopd according to the U.S. Energy Information Administration's July 2016 Drilling Productivity Report.

Highlands CEO Robert B. Price said, “Highlands is very excited to announce this farm-in transaction as it opens the door to near-term drilling activity and revenue generation.”