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Northern Petroleum (LON:NOP) told investors it has begun a single-well winter drill programme in Canada.
This well, located in an optimised position, is targeting better recoveries and a higher rate of production, the company said.
Results from the well are expected in February.
"A thorough technical review of the lessons learned from our 2014 drilling programme has indicated that our current well model assumptions may be conservative with regard to the initial production rate and ultimate recovery from future wells,” said chief executive Keith Bush.
"The well currently being drilled will test our revised subsurface concept and, if successful, has the potential to improve the redevelopment plan for the Virgo project.”
Bush explained that fewer wells may be needed to reach NOP’s goal of recovering 5mln barrels of oil. The capital cost of the project will be significantly reduced as a result, he added.
The high-rate well drilled last year came online towards the end of December and the company said the field’s production exceeded 500 barrels per day on December 27. Operations continue for the tie-in of additional wells.
It is expected that production will be in the range of 400 to 550 barrels per day from the beginning of February.
NOP is currently focused on keeping running costs as low as possible, while continuing to advance the field redevelopment project. As such the company has been carrying out revisions to its capital programme and has sought reductions to corporate costs.
"While the reduced oil price makes the business environment difficult and affects cash flow, I expect the service industry in Canada to react quickly and appropriately such that the operating costs of our production remain proportionate,” Bush said.
NOP told investors it had US$12mln of cash at the end of 2014.
Andrew McGeary, analyst at Northland Capital, said NOP has undergone a “significant transformation” since exiting its Dutch portfolio and a board restructuring.
He also highlights the improving production profile, which in the first half was 75 barrels per day - generating US$1.1mln for the first six months – and has now risen to around 500 barrels per day.
McGeary now looks ahead to the current single-well programme for a further uplift.
“If the revised programme for the Vigo field is proved successful with the latest well 102/11-30, then the valuation will look undemanding even at this stage of the cycle, given potentially 5mln barrels of recoverable oil,” the analyst said in a note.
He added: “Management expects contractors to adjust to the lower oil price environment to help improve profitability and there should be some flexibility in capex to preserve cash as demonstrated by the revised winter well programme.”
Elsewhere, SP Angel analyst Zac Phillips said: “Today’s update from the company suggests that it is well placed to weather the current oil price storm, in the near term at least.
“This will be helped by the fact that their recent well is producing a rate greater than they had first anticipated, and with also $12mln on the balance sheet, the company is in reasonably good shape,” he said.