US oil & gas play Northcote Energy (NTC:AIM) is in demand, up 8.2% to 1.32p, after increasing production capacity from a key unit on its 51%-owned flagship Horizon project in Oklahoma and updating the market on its ongoing fracture stimulation or 'fracking' programme.


We flagged the group's attractions back in March but the shares have been dragged down amid a weak market for AIM-quoted resource companies and some operational issues.


Web chart - Northcote Energy - Aug 2013


The installation of a new pipeline is set to increase salt water disposal capacity at the Little Drum unit by 150% and this allows for a proportionate increase in oil and natural gas production levels. Elsewhere on the Horizon development, located in the Mississippi Lime formation, the company says it has resolved mechanical issues with its fracking of the Big Hill #2 well caused by excessive acid levels and should announce the results of a flow test in due course.


Fracking involves pumping chemicals, water and sand underground to create fractures in rock through which hydrocarbons can flow.


Pressure levels on Big Hill #2 are similar to those achieved following its successful frack of the Big Hill #1 well – announced in May (28 May) and according to the company the next two fracks are fully funded, with the next set to commence in September. Northcote has a 2013 production target of 100 barrels of oil equivalent per day.


It is worth taking into account that the Mississippi Lime is not a shale play but is actually a carbonate formation. Without getting too technical this means individual wells tend to require more modest investment – between $2 million to $5 million – compared with the more complex shale plays.


Analyst Craig Howie from house broker Shore Capital says: 'Northcote continues to make excellent progress, in our opinion, and we continue to see potential for material growth in both production and reserves.'

Issue Date: 05 Aug 2013