AUT - Aurora Oil and Gas

[condog]

Using Esteons 40% Tax, Rems conservative 400 bcpd for the 2011 and 2012 wells , only 2mmcfgpd , $65 per bc, $5 gas, then applying a 10% PEGrowth to allow for 10% valuation to the next years net revenue per well. Note assumes no failed wells.



When you start giving future wells a value , you can clearly see why the sector operates on high PE's, aside from the obvious growth benefits.
In my opinion the clear growth is in the re-rating that will occur soon, when investors and insots realise the significance of the play and apply a future value. If that occurs prior to 2011, which imo it should , 2011 will offer Ok, but limited growth of around 20% , with far better growth in 2012 when cash flows to expense ratios are higher. but at some point in the interem we should possibly in my opinion see a major re rating, as we are currently operating with virtually ni future growth value whatsoever. For those who know the play, they know how rediculous that is.

 

[estseon]

I think that you are right - we're really waiting for a re-rating, which will follow release of the ramp-up drilling programme, imo.

If the current wells are draining the rock only or primarily from the induced fissures and fractures (the rock is tight - very impermeable) and if they extend only about 150ft from the well bore, which might be a necessary constraint in the vertical plane to avoid damage to the seals above and below the reservoir (vis the Sugarloaf 1 well), the footprint area drained is about 35 acres. So, how many wells would be required? The total gross acreage is a bit over 51,000 (all 3). If they allow 50 acres per well (they've been talking about 100 acres to date), that's 1,000 wells. How many to drill in 2011? 4 rigs might manage 40 - 50. Even at that rate of drilling, there'd be 10 - 20 years of development using current technology for recovery. Each producing well might repay capital cost and fund 2 new wells in the first 12 months....perhaps 3.

That's what I see as driving a re-rating. That could be an EPS of 50 cents by the end of 2011. 75 cents by the end of 2012. 90 cents by the end of 2013. All depending on rate of depletion, maintained drilling rate, prices etc. I've assumed 1,500 boepd. It's difficult to see less than $5.

 

[condog]

Esteon i agree with all. Those figures are in the ball park imo.

Drill rates, flow rates, decline rates, well spacing, drilling costs. All we can do at this stage is estimate.

But the few things imo that appear to be obvious are.
* Price of condensate and gas is by far imo the biggest risk factor
* The general market conditions are imo more likely to affect condensate and gas prices then the sp itself, however lower gas and condensate would flow through to projections. While prices are economic upward pressure will be generally be sustained with each new well.
* Capital will be tight in early 2011, but beyond 2012 economics of cash flow and drill costs should become much better. Despite that sp should imo increase with each new well in 2011 to reflect future cash flows, and added assett values, plus de-risking of the entire project and company.
* If energy prices remain highly feasable, At some point a huge re-rating should occur as Hilcorp convince the market that most wells will be successful, profitable, and future valuation begins to get built in.


If Longhorn or Ipenema with there higher interest wells have great flow rates like it appears Morgan will have then, this has a multiplier effect due to the significnatly higher returns per well spacing imo. Especially longhorn, given its 25% of 23000 acres. From an AUT perspective Longhorn and Ipenema offer significnatly higher returns if they are good. If these Turnbull wells are good, then imo this project has a rocket under it. But thats only opinion.

All opinion so DYOR and seek expert advice.

By the way anyone looking for Agent's link to the Pattersons Report its on Page 10 of this thread. Or click the link here. ASF and I take no responsibility for safety or content of external links. Note they have updated that valuation to 93c last week.

 

[WRONG'UN]

I like what you guys are saying!

As a cross check, I have attached p17 of ADI’s latest presentation , which gives their assessment of the economics of a single well.

In a nutshell, a single well has an NPV of $US12m (gross) (ADI’s 10% share = $1.2m)
So, AUT’s 20% would be $US2.4m = $A2.7m (@ 0.89)

Tax @ 30% would cut this to $A1.9m

ADI are talking about 235 wells – I’m not sure how many would apply to AUT, but as a guide, if it’s 235, the valuation for AUT would be $A1.9m x 235 / 220m shares = $A2.03 / share. Estseon’s 1000 wells would put the valuation up to over $8.

ADI have made a number of assumptions in their model:
. Oil $US80
. Gas $US4.0
. Well cost $7.0m
. 4,500 ft horizontal
. 30 day flow rates for Kennedy and Weston of 11.5mmscfe/d
. 12 year production (wells expected to produce economically for 20 years)

The latest info has oil and gas lower, but well costs are also lower, longer laterals are possible, and Morgan has burst onto the scene – overall things are still looking fine - all the field related assumptions appear to be conservative. As Condog said, the biggest risk is a large fall in energy prices. For example, if gas were to drop to $3, the valuation would drop by about 40%, and the payback time would extend to about 1 year.

Not trying to dispute what’s been said already – just looking at another way of arriving at a good answer!

 

[condog]

Wrongun from the Pattersons report, might help with your method.

Also note reduced drilling time and significantly higher return from Morgan, may have big upward effect on NPV.

Based on the gas field designation, wells will initially be spaced to hold the ground under production on 640 acre spacing. On this basis a total of 88 wells are required to hold the three AMI’s. However, based on a full field development, optimum well spacing is estimated to be 100 acres well, requiring more than 500 wells.

Significant upside to be unlocked through 2010. AUT is fully funded through a busy 2010 program with zero exposure to drilling risk & costs. Completion of the 10 wells via the farm-in should see a substantially increased contingent resource and/or reserves position and provide a steady flow of catalysts throughout the year.

 

[WRONG'UN]

Thanks Condog
I should actually have used 10%, not 20%, for AUT's interest, due to the farm-out.
Reworking the numbers, and applying 100 acres/well to AUT's 20,285 acres, pre farmout, and ADI's $US12m NPV/well, we get:

( 20,285 acres x 0.5 (farm-out) x $US12m NPV/well / 100 acres/well ) / ( 220m shares x 0.89 aud/usd ) = $A6.21 per share

So we are in the same ballpark, without including the enhancements provided by Morgan etc.

I see Talisman have just paid $US9,700 per acre for Common Resources' Eagle Ford assets. Applying this to AUT's post farm-out acreage we get $A0.50 per share - not sure where Common Resources are in relation to the AMI, but considering the likelihood that the AMI area would sell at a premium to other Eagle Ford areas, the current AUT sp ($A0.61) looks close to its "surrender value".

 

[condog]

In the Oct 2009 Investor presnetation from the Aurora web site AUT provided an excellent graph of future value projections. They did not apply exact time frames, but its easy to see where we are heading.





We really havent seen the sudden part of the curve in full swing yet imo. We havent evencracked $150M at present thanks to last weeks shannenigans elsewhere.

Could be interesting next few months if AUT preso is anything to go by??

At 200M sp = 91c, 400M sp = 4.82, 600M sp = 2.73, 800M sp = 3.64, 1B sp = 4.55

 

[mir]

condog , WRONG'UN & estseon
good to see all those calcs & possible future price targets for aut ,it doesn't matter who & how you do it , it aways comes out at many times the current share price. the Patersons upgrade from 92c to 93c was an absolute joke & waste of time given the IP results from morgan which were double previous results ( Patersons also follow AZZ & have raised $20m for them ).
i believe there could be another report out next week on AUT from a new company ,it will be interesting to see how conservative they will be.

 

[WRONG'UN]

Common Resources are in the "condensate window", southwest of Sugarloaf - the same area as Petrohawk's 26 wells. The average IP from 30 wells (including Petrohawks' 26) is 10.3mmscf/d - Morgan is 31!

 

[condog]

I note oil price stabilised, hopefully a pre-emminint indicator of the market stabilizing, if so hopefully we will get a very big strong bounce to factor in the Massive morgan results from last week.

Those to graphs above will llok cheap if Turnbulls come out with high numbers and we get a big reserves upgrade in July. Looking forward to turnbull 1 IP's.

Also dont forget some of those spreadsheets on the previous page have used numbers as low as 4mmcfgpd. Kennedy, Weston, Morgan and Easily are not on production tubing yet. Morgans and Easily numbers where high as IP's. But the Kennedy and Weston numbers should improve significantly on production tubing.

 

[condog]

Ive readjusted for what in my opinion (may not be fact) is realistic. Using net figures to allow for admin and lifting costs. $62 for condensate net and $3.75 net for gas. Ive updated production numbers to what i think they might average on tubing at 500 bcpd then 700bcpd and 2.5mmgpd. Got 30% and 50% declines. Using original drilling schedule of 10 in 2010, 15 in 2011, 25 in 2012. Applied total of 40% for tax and royalties starting in 2011, assuming 2010 is tax free from offsets.

Note it has 10% of the value of the next years wells built in.

I believe and its only opinion so DYOR and seek expert advice. But i believe this is realistic somewhere between PE of 10 in the top table and 12 in the bottom table of the two. However if the Turnbulls come out with high numbers, who knows?


Cross check as may contain errors. always seek expert advice. always do your own research and take full responsibility for your own investment decisions.

 

[condog]

Very interesting read, From the John Campbell's weekly oil and gas newsletter, that another punter brought to my attention.

This bit about a date for Kowalick is new.

"The JV expects to have one more recompleted well, Kowalik #1H, and one new well, Rancho Grande #1H, in production by the end of June."

Also of note, giving confidence to new punters.

" The numbers stand up to close scrutiny. The professionalism and experience of Hilcorp has made all the difference to a project we once derided. All three companies involved are competently managed and factual and transparent in their presentations. There is little of the hyperbole that accompanies so many of the junior Aussie oilers operating in the US. So the share price of the JV partners have not been inflated with b/s."

I said this for the last 6months in the ADI threads and in here and have been publicly bagged for it , but i totally agree with John Campbell that this fact derisks AUT somewhat compared to its two partners.-

"And for ADI and EKA the drilling priorities of Hilcorp could become an issue if Longhorn and Ipanema prove even better fields than Sugarloaf."

dont get me wrong if your a holder of both. ADI imo will do very well, but imo AUT is safer and should do better.

 

[Agentm]

Very interesting read, From the John Campbell's weekly oil and gas newsletter, that another punter brought to my attention.

This bit about a date for Kowalick is new.



Also of note, giving confidence to new punters.



I said this for the last 6months in the ADI threads and in here and have been publicly bagged for it , but i totally agree with John Campbell that this fact derisks AUT somewhat compared to its two partners.-


dont get me wrong if your a holder of both. ADI imo will do very well, but imo AUT is safer and should do better.

john campbell has been the biggest single critic of the management of the jvp partners for so many years now, his credibility on the eagleford-sugarkane play is ZERO condog

but his praise for the hilcorp team and the jvp management is totally endorsed by me. for the first time john campbell has put his admission of derision for the jvp partners management

this is what appeared on the other thread.. i will clean it up a little..

The Sugarloaf trio, Adelphi Energy, Eureka Energy and Aurora Oil & Gas reported initial flush production of 5.15 mmcf of gas and 2,046 barrels of condensate from their Morgan #1 well and 6.81 mmcf of gas and 780 barrels of condensate from the Easley #1 well.

The trio acknowledged that these initial production rates were not indicative of a short or long term production profile. But they claimed the rates compared very favourably to results achieved by other participants in the wider Eagle Ford Shale play.

The current four Sugarloaf wells could return $13,000,000 gross a year to ADI and AUTs 10% equity interest. So far we have the following daily production profile for the Hilcorp farm in wells:
Well Gas Condensate mmscfep/d
Weston # 1H * 5.70 mmscf 378 bocpd 9.1 mmscfe
Kennedy #1H * 2.47 mmscf 540 bocpd 9.6 mmscfe
Easley #1H ** 6.81 mmscf 780 bocpd 31.0 mmscfe
Morgan #1H ** 5.15 mmscf 2,046 bocpd 17.9 mmscfe
Total 20.13 mmscf 3,744 bocpd 67.6 mmscfe #

* 60 day average. Recompleted previously drilled wells.
** Initial production. New wells.
H stands for horizontal.
# Converted at 12:1 that is 1 bo equals 12,000 cubic feet of gas (12 mcf).

Adelphi Energy and Aurora Oil & Gas each have a 10% interest in the Sugarloaf project after Hilcorp‟s farm in. Eureka Energy has 6.25%.

So ADI and AUT have net daily production on the above numbers of 6.76 mmscfe/day. Or 2 mmcfs/d and 374 barrels of condensate per day. One mmcf of gas at US$4.00 per mcf is worth a gross US$4,000 a day or US$120,000 a month or US$1,460,000 a year. One hundred barrels of condensate at say US$75 a barrel is worth US$7,500 a day or US$225,000 a month or US$2,700,000 a year.

So provided flow rates don‟t change and oil and gas prices remain the same, ADI and AUT could be looking at some US$13,000,000 a year in gross sales revenue from the first four wells alone. But flow rates will decline. That‟s inevitable. How fast only time will tell. It is not unusual to see up to a 30% decline in the first year. That decline could be offset by higher prices.

The break even gas price for the project looks to be around US$2.73 an mcf, reportedly the lowest of all US shale plays. And of course by drilling more wells. The JV expects to have one more recompleted well, Kowalik #1H, and one new well, Rancho Grande #1H, in production by the end of June.

In Adelphis recent investor presentation it claims up to 200 potential new well locations on the 23,500 acre lease that is the Sugarloaf AMI. With full scale, multi rig development to commence in 2011 when the JV partners will pay for development wells at their respective equity interest level. The Sugarloaf project‟s economics look very strong. The numbers stand up to close scrutiny. The professionalism and experience of Hilcorp has made all the difference to a project we once derided. All three companies involved are competently managed and factual and transparent in their presentations.

There is little of the hyperbole that accompanies so many of the junior Aussie oilers operating in the US. So the share price of the JV partners have not been inflated with b/s.

Which stock to support is a question.

Adelphi, Aurora or Eureka with its slightly smaller equity interest.

Aurora has an interest (50%) in the Longhorn and Ipanema projects in the same Sugarkane field. These are AMIs not shared by Adelphi or Eureka. And Hilcorp is now drilling the first two of three farm in wells on Longhorn (Turnbull #1 and Turnbull #2) with one farm in well to come on Ipanema. So the Longhorn and Ipanema acreage that only Aurora has the interest in provides Aurora with three times the net acreage interest that it, ADI and EKA have in Sugarloaf. Paterson Securities recently put a research paper on Aurora with a target price of $0.92

(this line next look like a real typo,, where they say adelphi imho instead of AUT... but he is correct in his calculations that AUT need capital )

But bear in mind that Adelphi like Adelphi and Eureka before it, will likely need to raise more capital to meet their drilling commitments if, as seems anticipated, Hilcorp will go hell for leather in developing the three AMIs. We don‟t know what a well costs but assume it is around US$5 million so payback is reasonably quick at less than six months. In short it probably doesn‟t matter which of the three stocks one chooses.

Adelphi which is currently raising money at $0.25 and Eureka Energy are our current preferences given the leverage of their lower share prices when compared to Aurora.

This past week ADI dropped from $0.295 to $0.275, AUT from $0.65 to $0.61 and EKA from $0.14 to $0.13. The drivers for these stocks will be the news flow as Hilcorp gets on with the drilling and completes and places more wells on production. The third well Rancho Grande was due to be fracced and completed this month. And for Aurora only, results from the Turnbull wells can‟t be too far away. The possible downside is a dramatic fall in gas prices though we don‟t see them falling much further as the US economy rebounds. It is always possible decline rates will exceed expectations, though the JV doesn‟t think that will happen based on analogue fields. And for ADI and EKA the drilling priorities of Hilcorp could become an issue if Longhorn and Ipanema prove even better fields than Sugarloaf.

 

[condog]

Agent i dont buy it. If hilcorp accellerate they may need capital, but it will depend on which acerage and by how much they accellerate, as well as the impending turnbull and ipenema results, as well as the Kowalik fix up.

So for you or even John to say they need capital and put it in read is pure speculative rubbich at this stage.

I have questioned Jon Stewart from AUT on this many times. His latest conversation with me was that cash position is better then i estimated. If hilcorp do not accellerate plans it is unlikely they will need capital. If they doo theres a lot of other variables that come into play as to if they will at all or how much.

So anything else at this stage is complete speculation and unfounded.

Happy to be proven wrong in time but at present thats the way it is.

 

[condog]

Almost bed time , Dow up 390+ and oil up strongly $2 at 12.25am and tapering. Hopefully a strong 150-200 day on the ords will see AUT set new highs on Tuesday in light of the Morgan results still yet to see a new high.

Remember Morgan came out with flows equivelent to 3 wells for most other locations and it was on a shockeer of a day and down since. So hopefully that will now get built in somewhat.

 

[mir]

EUROZ puts $1.02 on AUT
Australian Equities Research




--------------------------------------------------------------------------------

Aurora Oil & Gas Ltd (AUT $0.64) Buy, Initiation of Coverage


--------------------------------------------------------------------------------



Initiation of Coverage

Investment Highlights

4 AUT is a liquids-rich shale gas producer, focused upon the highly prospective Eagle Ford Shale in on-shore Texas.

4 Low geological risk underpins a growing production profile, reserve base and strong earnings.

4 AUT hold a material position within the high condensate yielding Sugarkane Field within the Eagle Ford Shale trend.

4 JV partnership with Hilcorp provides experienced shale gas operator to extract maximum value from the acreage.

4 Flow rates (initial, 30 and 60 day), from AUT’s existing wells are among the best recorded in the Eagle Ford to date.

4 Recent transactions value prospective shale acreage in the US at US$19,000/acre and include all of the Majors. This values AUT @ A$210m or $0.95/sh.

4 AUT is cheap with EV/boe of A$4/boe, based on 1C resources of 100bcf gas and 17mmbbls of condensate.

4 An upgrade to resources and a maiden reserve expected Sept Q’10, with at least 6-7 wells on production by mid-year.

4 Continued reserves growth with an active drilling campaign over the next 10 years.

4 On current conservative production forecasts, AUT can be +2mmboe (or 5,500boepd) producer by FY’13 and double total production by FY’15.

4 AUT has A$9m in cash and no debt.

4 Quality management, underpinned by strong technical team and a strategic partnership with a proven shale gas operator.

4 We initiate coverage with Buy and a price target of $1.02/sh.

 

[condog]

EUROZ puts $1.02 on AUT
We initiate coverage with Buy and a price target of $1.02/sh.

Nothing short of sensational to have two brokerage houses reccomending the stock a buy now to two lots of clients, at almost 50% of its ST valuation.

This is outstanding news for AUT and its holders.

Its the song we have known and been singing for some time. And having two brokers valuaing it with a buy so blatently under priced now puts pressure on other brokers to reccomend it to thier clients if they find it stands up to the story Pattersons and euroz are saying.

 

[condog]

By the way, imo those that have thier fill of AUT should actively be asking there own brokers to start covering this stock, even so blatently as emailing them the links to the patterson and Euroz reports.

A few star ratings of this thread wouldnt hurt either.

 

[Sdajii]

Personally, I hope it stays low for at least another 3-6 months. After that it can fly to the moon and beyond, and I'll enjoy the ride, but I want a bit more time to give me the chance to stick another finger or two into this pie! Unless you are wanting to sell out in the near future or capital raising is required (which you can't take part in) I can't see any urgency in getting the price to rise. The longer it stays under the radar the better, because it just gives us more time to buy in. Imagine if in six months time there were a few more wells with excellent flow rates and the price was still around current levels! I know that would make me very happy!

 

[5haretrader]

Theres been a bit of talk of AUT cap raising in 2011. What time of the year is this most likely to occur?