Colorado oil producer Nighthawk Energy (HAWK:AIM) is brought back down to earth as it reports disappointing drilling results and a production dip in June.

The shares, down 9.4% to 12p today, have still almost doubled in the last 12 months but the news the Snow King 12-33 appraisal well is unlikely to extend April's initial Snow King discovery and the 4% month-on-month fall in June output to 2,062 barrels of oil per day (bopd) helps prompt the sell off. The group also indicates the Knoss 9-20 exploration will be plugged and abandoned.

NIGHTHAWK ENERGY - Comparison Line Chart (Rebased to first)

The disappointment is worth putting into perspective. Total gross oil production in the first six months of the year has seen a more than a four-fold increase to 345,558 bopd from 85,609 bopd for the same period in 2013 and its second quarter production more than trebled to 188,203 bopd from 57,434 bopd. There was also better news on the development of the group's unconventional resources – with the John Craig 2-2 well set to be brought on stream. Following this, total production from the John Craig area is expected to be in the range of 250-300 barrels of oil per day.

Broker Westhouse Securities retains its buy recommendation and 16.5p price target. It comments: 'On the positive side, the unconventional John Craig wells are confirming the commerciality of the Pennsylvanian formations. Gas condensate discovery is a surprise but flow rates are encouraging and commercial options will be evaluated. We note that unconventional formations are extensive throughout Nighthawk’s acreage (net 254,000 acres), but naturally there will be sweet spots.

'Conventional production is largely in line with our expectations, on the negative side, the Snow King 12-33 well is disappointing, but there are two more wells to come in this area with next one to be drilled in August.'

Issue Date: 17 Jul 2014