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Highlands Natural Resources PLC: DEEP DIVE
OVERVIEW

Highlands Natural Resources makes rapid progress with new CBD operation

"The progress made by Zoetic since we established this operation less than two months ago has been excellent”
cannabis plants
OVERVIEW: HNR The Big Picture
Yields are up 30% using Highlands' gas mix

 

  • Originally oil and gas, company has recently moved into the CBD business through its Zoetic subsidiary

  • Company still has shale gas interest in wells in East Denver

  • There is also a helium producing operation

  • At 12.50p, Highlands’ market cap stands at £17mln.

 

How is it doing

Highlands Natural Resources Plc (LON:HNR) has undertaken a major shift in direction in recent months.

Originally an oil and gas group with wells in Colorado, in March Highlands got into the CBD business via the new Zoetic Organics subsidiary.

The company recently secured its first retail distribution and sales agreement, to supply products via Schrader Oil’s chain of eighteen convenience and gas stores.

At the same time, it is also selling direct to customers online and developing a seed distribution business.

"The progress made by Zoetic since we established this operation less than two months ago has been excellent,” said Robert Price, Highlands executive chairman.

Zoetic is presently planting outdoors, with the team aiming to cover two eight-acre fields.

The company anticipates a planting deadline of 30 June, though it expects to complete the programme before then.

The group is also building out a 33,000sq ft of greenhouse, growing plants for CBD production.

Capacity is expected to reach 10,000 plants per season, and, along with the primary CBD products, those plants will yield more than 500 seeds.

Highlands noted that the indoor growing cycle is a little longer than outdoors, but still expects to achieve at least three production seasons per year.

 

Synergy

The broader gas business provides synergy, as it is supplying gas to produce a nitrogen-hydrogen based fertiliser that’s being used across the Zoetic operation.

In today’s statement, the company highlighted that demand for high-quality seeds is very strong amid a fast-growing hemp and CBD industry,

 

Gas production

Highlights told investors in May that its eight part-owned production wells at the East Denver project yielded around 2,700 barrels of oil per day and 4mln cubic feet of gas per day.

Five of the eight new wells are currently operating on a limited choke, restricting output with a view to maintaining pressure and extending well life.

The company owns a 7.5% interest in the wells, and, it said that the asset is generating monthly revenue above the company’s fixed operating costs.

Taking account of expected revenues across the whole group, Highlands said it retains the view that it will generate sufficient cash flow to cover all overheads for the current year.

At East Denver, Highlands has also received a US$58.5mln commitment from a US oil and gas-focused private equity group to support an expansion of up to 24 wells at the site.

According to HNR, the East Denver project has an NPV10 range for six wells of between US$23.3mln to US$30.1mln.

An estimate for the full 24 wells sees this estimate increase to between US$96.6mln to US$124.5mln.

 

DT Ultravert

Away from its production arm, HNR also has its DT Ultravert technology, which has been proven to prevent ‘well bashing’ and enhance well productivity.

The process involves the injection of nitrogen gas into an existing well at the same time as a new nearby well is fracked.

Highlands has enjoyed some early stage success in deploying the technology but needs its own nitrogen supply represents one of the largest cost inputs.

As a result, it has been looking to produce its own nitrogen from a project in Kansas.

HNR’s thinking is that if it can start producing its own nitrogen, it will not only reduce the cost for its customers, but it will also improve its own margins and possibly create another revenue stream if it becomes a supplier in its own right.

HNR holds a 75% stake in the DT Ultravert technology patents.

 

What the boss says : Robert Price, chief executive

"Our gas is a game changer for organic growing, We can increase the yield by 30%.  We supply the gas to the soil so it's a natural fertiliser. The plants look really beautiful. We bring gas from Kansas into Colorado and produce different oils from hemp."

 

Latest video

 

Inflexion points

First sales from the CBD business

Increasing production from the East Denver wells as more come on stream

Hydrogen/nitrogen mix found in Kansas, with the most signficant beneficial results in cannbis and hemp plant

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Highlands Natural Resources PLC Timeline

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