Australian (ASX) Stock Market Forum

AUT - Aurora Oil and Gas

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mir said:
i went to an AUT presentation yesterday & a few of us had a chat after the presentation, it's a bigger no brain-er than ever.

key points
1. AUT is currently trading at $10 to $11 boe (pre royalties on 3p)the average on the TSX is $25 to $30 on 2p,AUT will be 2p by the end of the year.

2. gmp commented about the possibility of the reserves being 10 times larger . 20 acre spacings with one well in the chalks & one in the eagleford gives you about 8 times & then you increase the EUR by 30% to 40% & there you go but must be tested first.
i would be more than happy with half that,the point is AUT reserves should increase dramatically in the future.
estseon "the only issue is connectivity between the wells"
if you get connectivity you may lose some EUR but 2 x 600 mboe is better than 750 mboe.

3.AUT should go into field development by mid next year which means multiple wells from one pad as opposed to drilling to retain acreage.cost of wells will come down & tighter well spacings.

4. aut acreage is in the sweet spot of the eagleford as shown on page 12 of the presentation plenty of red dots.

5. drilling & frac crews under control with hilcorp.

i will try to remember more.
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I really like to know more about AUT and do some research on these guys, but statements and sentiments like these in a forum really turn me off.

The only no-brainers out there are if a stock has $1 in cash but trading at 20c. When a company needs to drill, prove up resources and sell in a market as a price taker, there is always some risk.

It may be a wonderful risk adjusted return, but it's rarely a no-brainer.
 
skc said:
I really like to know more about AUT and do some research on these guys, but statements and sentiments like these in a forum really turn me off.

The only no-brainers out there are if a stock has $1 in cash but trading at 20c. When a company needs to drill, prove up resources and sell in a market as a price taker, there is always some risk.

It may be a wonderful risk adjusted return, but it's rarely a no-brainer.
Click to expand...
Nice post skc.

Even 'Blue Chips' have risk.

Take a carbon tax being introduced.

Peace in the Middle East.

Water converted to power.

No finance due to world implosion.
 
kennas said:
Nice post skc.

Even 'Blue Chips' have risk.

Take a carbon tax being introduced.

Peace in the Middle East.

Water converted to power.

No finance due to world implosion.
Click to expand...

Lol. I looked at the 4 things and thought 'water converted to power' would be quite impossible. Then I realised 'peace in the Middle East' may be even more remote...

Back to AUT.
 
skc
"I really like to know more about AUT and do some research on these guys, but statements and sentiments like these in a forum really turn me off."
sorry skc i should of put "imo"lol
i have been in this one from day one & know the story pretty well. lets see what you can add.
 
Ah, that's better!
......................................................................................................
AEF 1.jpg
 
Do you guys think either the version of AUT follows the other like the ASX sometimes has a good lead off the DOW?

IE: AEF rising last night is that maybe on the back of AUT rising yesterday?
 
BrightGreenGlow said:
Do you guys think either the version of AUT follows the other like the ASX sometimes has a good lead off the DOW?

IE: AEF rising last night is that maybe on the back of AUT rising yesterday?
Click to expand...

IMO I think the aef tends to follow aut. They are the same company however so usually there won't be much difference in the share price. Maybe some people saw the rise on friday as the bottom of the fall and bought in as they feel its going to go up from here. I certainly think it is dirt cheap! Aef did rise more than aut so we'll see on Monday if aut follows it up near the $3 mark. Anyone else got an opinion on this?
 
skc said:
I really like to know more about AUT and do some research on these guys, but statements and sentiments like these in a forum really turn me off.

The only no-brainers out there are if a stock has $1 in cash but trading at 20c. When a company needs to drill, prove up resources and sell in a market as a price taker, there is always some risk.

It may be a wonderful risk adjusted return, but it's rarely a no-brainer.
Click to expand...

Got to say MIR knows this thing inside out and back to front and is an invester with a lot of intelligence, experience and very good judgment.

For you to come in here and as your first post on the stock make a statement like this and attack one of the core posters in this thread, one that has an incredibley deep knowledge of the play, imo is extremely tactless and poor.

The fact MIR went to the preso is a big posistive for him and us, and MIR via the forum and via emails we have sent to each other is one very switched on character that knows this stock incredibly well.

Cheers MIR keep up the posts like that, i love it and i really appreciate what you bring to the table. I know exactly what your getting at and i have every confidence in your ability to extract detail from Jon and others.

SKC when you demonstrate you know the first thing about this stock, I will begin to listen to you when you make claims about whether its a no brainer or not. Right now im far more inclined to trust MIR judgment and my own. And we both agree for many good reasons think this is a "no-brainer". Perhaps if you bothered to do the research you might know why.

In reference to $1 cash and 20c stock. I?f you knew how to research stocks like these you would find that they often have $4.50 plus worth of value to be relatively safely and easily unlocked when they are in fact trading at 20c. Which is when MIR invested in this thing as did I. And using the same analysis and knowledge that told us it was going to be worth $2plus back then, we now see that in our opinion its going to be well worth the $4.50 plus Euroz has on them and possibly up over $8 by end of 2011 if things go according to plan. Personally to me that risk is a "no brainer" and imo one that has no question about whether its a risk i should take or not.
 
Condog, no man is a mesiah, what is mir the only one to hold AUT from day one???

You need a reality check , there was nothing wrong in SKC post.

lol, at your put downs.
 
Great piece Condog.. I agree you and MIR are great. Love your posts and plenty of faith in your knowledge! Fantastic!
 
Big thanks to MIR for not only taking the time and paying to go to the conference but also sharing some of your enthusiasm and what you gleaned there, this is much appreciated! If you have anything else to share please post here or pm me :)
Big thanks to Condog for clarifying things and supporting this thread so consistently which adds to a lot of value here. Thanks to the many others who share their knowledge and insights as well!
I welcome all opinions including negative sentiments or concerns as we need more than just the positive side of things to have a more complete understanding, however negative personal comments are not constructive and negative comments about the stock itself are best when based on facts or or at least expressed in a humble fashion, esp if one is not well versed in the fundamentals of the stock and even more so if relatively new to a thread. I've been in this stock since 51c, I read all posts and all company announcements and more and still have a LOT to learn.
It can get scary when the market is so moody and world events cause dips such as we have seen. The combined knowledge and ideas expressed here is amazing to me as is the willingness to share and welcome new comers. It all adds to my confidence in the stock and sector in general. I look forward to more learning and higher AUT prices :)
 
Focusing on the stock, i agree MIR thats its more a no brainer right now then ever.

The growth of asset values is steeper then ever with 4 rigs onsite.

As you say AUT is currently trading at $10 to $11 boe (pre royalties on 3p)the average on the TSX is $25 to $30 on 2p,AUT will be 2p by the end of the year.

Theres the well spacin issue of possibly down to 20 acre spacing with two targets - the shale and the chalks. Imo they at a minimum will go down to 40 acre spacing which will double EUR's. If you then factor in most wells can then later target the chalks then its possibly a 4 to 8 fold increase in EURS.

Then factor in the HiTech frac technique and add 25% to those new figures which are 4 to 8 times current EUR's and you begin to see the possibilities here.
As you say MIR we will likely see strategic targets rather then leasing obligations as early as 2012. Which is incredibly impressive given we started with a 10 well program.

Aut acreage is in the sweetest sweet spot of the eagleford which is proving to be the sweetest shale in the entire USA. Cant get much better then achieving all those red dots in the best shale in the world right now.

The way hilcorp is achieving constant fdrilling and fraccing in good time with virtually no delays unlike many others that are getting held up months on every well.

Then thers also now the price of oil and gas which is proving now to be extremely profitabel for AUT with much shorter payback times then many competitors and ultimately driving up the NPV of each well and the value of AUT.

Not hard to see it easily surpassing Euroz new target of $4.50 in not much time at all.
With 60 odd wells about to evolve do the maths, its not going to be at these prices much longer.

Definitely agree MIR its a no brainer more now then ever.
 
skc said:
I really like to know more about AUT and do some research on these guys, but statements and sentiments like these in a forum really turn me off.

The only no-brainers out there are if a stock has $1 in cash but trading at 20c. When a company needs to drill, prove up resources and sell in a market as a price taker, there is always some risk.

It may be a wonderful risk adjusted return, but it's rarely a no-brainer.
Click to expand...

Cigarette butt investing for net net stocks isn't always a no brainer either as there are usually reasons for them comapnies being priced at a discount.

Anyway to AUT, I was interested in how to calculate reserve increases from smaller well spacings as in a traditional resevour extra holes are to increase flow rates and to target stranded accumulations.

Is all the oil in the shale a case of stranded reserves i.e. as they need fraccing to flow at adequate rates and that decreasing the spacing wouldn't cannabilise oil that would have been pumped up by another well at a later date. I.e. that it does indeed increase reserves not just flow rates.

If indeed this is the case why aren't they already using the smaller field intervals and 20 acres just seems like a small area given the amount of money they need to spend to drill and frac a hole.

I also have issues using relative valuations vs the TSX as reason why AUT is undervalued as I had a rule of thumb of $10 per 2p boe as fair value as that seemed to be closer to the going rate on the ASX and for some of the companies at times their 2p reseves had negative value.
 
suhm said:
Cigarette butt investing for net net stocks isn't always a no brainer either as there are usually reasons for them comapnies being priced at a discount.

Anyway to AUT, I was interested in how to calculate reserve increases from smaller well spacings as in a traditional resevour extra holes are to increase flow rates and to target stranded accumulations.

Is all the oil in the shale a case of stranded reserves i.e. as they need fraccing to flow at adequate rates and that decreasing the spacing wouldn't cannabilise oil that would have been pumped up by another well at a later date. I.e. that it does indeed increase reserves not just flow rates.

If indeed this is the case why aren't they already using the smaller field intervals and 20 acres just seems like a small area given the amount of money they need to spend to drill and frac a hole.

Makes $2.80 seen obscenely cheap int he grand scheme of things.

I also have issues using relative valuations vs the TSX as reason why AUT is undervalued as I had a rule of thumb of $10 per 2p boe as fair value as that seemed to be closer to the going rate on the ASX and for some of the companies at times their 2p reseves had negative value.
Click to expand...

At 80 acre spacing there are huge gaps between wells not being utilised.

Right now they are drilling to secure leases. If you have leases and fail to put in a well per 320 or 640 acres you lose your rights to that lease once the time period expires.

The other thing worth noting is you only retain rights above the depth you do the well to. Hence the continual targeting of the EF shale rather then putting a few tes wells into the Austin Chalks above.

Once we secure all leases sometime in 2012, then they will be free to drill wells whereever they wish and at what ever depth they desire.

Right now though the priority is to put a well down every 320 acres and secure the leases.

As far as well spacing goes the optimum is to get them as close as possible without the fractures running into each other, known as "well communication".

In the event they do communicate, its far from optimal, but its not the end of the world either. They simply lose pressure in the higher of the two wells and they have difficulties setting the correct choke sizes, as a change of choke on one well effects the other as well. They also lose some EUR's.

As someone above said though having EURS's of 2*50mboe is better then having say 1*65mmboe per well. And having flows of 2*600boepd is better then having 1*750boepd.

So yes you will definitely imo see much tighter well spacing in 2012, once our leasing obligations are completed. But right now all capital and time is critiacal to meeting lease obligations.

When they do have time and capital spare to play around with well spacing and possible dual horizontal wells etc we may potentially imo see a doubling of reserves give or take 50%. If they can get down to 20 acre spacing which will be a big ask they may just quadrupple reserves. Similarly if they get wells operating from both the EFS and Austin Chalk at the same time we could potentially, but unlikely see an 8x reserve increase compared to now.

Whilst i think 8x just from well spacing is possible, but imo unlikely 4-6 seems imo easily achievable. Then technology like pulsating fracs etc can also add significantly eg 25% using the latest methods. These % if they are done on enough wells are compound, in that the 25% better EURs gets applied after all the well spacing etc has been taken into account.

GMP reckon they forsee a 10 fold increase in reserves for AUT. Given the relatively conservative reserves reports so far, yes its easy to see, how the GMP forecast of 10 times increase in reserves is possible.
 
condog said:
Said lots of good stuff
Click to expand...

Hi condog,
I was just wondering what information you have used to build your understanding of the way these operations work and the metrics that are important to them. I'm pretty new to this and have followed your posts with great interest and read the company reports referring to wikipedia and such to decipher unfamiliar acronyms.

To my noob eyes your analyses of the company data seems really good, and I'm certainly bullish on long term oil prices. Enough so that I've taken out a small interest in AUT. However I'd still like to understand it all a bit better (and maybe top up a bit more if I don't miss the boat) so was hoping you could point me in the direction of some educating material on the general industry rather than AUT itself :)

Thanks,
Alex.
 
AlexG1 said:
Hi condog,
I was just wondering what information you have used to build your understanding of the way these operations work and the metrics that are important to them. I'm pretty new to this and have followed your posts with great interest and read the company reports referring to wikipedia and such to decipher unfamiliar acronyms.

To my noob eyes your analyses of the company data seems really good, and I'm certainly bullish on long term oil prices. Enough so that I've taken out a small interest in AUT. However I'd still like to understand it all a bit better (and maybe top up a bit more if I don't miss the boat) so was hoping you could point me in the direction of some educating material on the general industry rather than AUT itself :)

Thanks,
Alex.
Click to expand...
'Oil 101' from amazon is pretty good.
 
I wish i could point you to resources, but realistically everyones depth of knowledge is different. I suggest you google terms you really dont understand. Read and re-read the broker reports. They emphaisize what they know, whats in doubt and i think Euroz CBA, GMP and Hartleys do a good job of explaining thier valuations.

Go to the AUT website and read the broker reports and the company presentations. I also suggest you do some reading on valueing oil and gas companies. Theres a forward cash flow model, a reserves model and a balance sheet model for valueing them. However if you want to be an early entrant you need to learn how to project whats going to happen.

As an example of that GMP, myself and MIR , Euroz and CBA are projecting AUT will have a rise in both cash flows and Reserves and weve done a pretty good job in here of explaining why and how.

http://www.auroraoag.com.au/IRM/content/report_analyst.html

Important to note though that projections dont always come true. So far however AUT and most the EFS are proving to ve very reliable producers. NOT all though see AZZ as an example of an EFS player thats "stagnated at best imo".

Go back to around page 17 to see early cash flow projections of mine using my spreadsheets which i have refined significantly since then. The brokers use bot a reserves and balance sheet model. ITs best imo to use a consensus of all the targets.

From Euroz
Aurora Oil and Gas Ltd. (AEF-T, AUT-ASX); BUY, $4.50

AEF releases 2010 Reserve Report

3P reserve increased to 112.197 million boe

AEF reported 3P reserves of 112.197 million boe, marginally up from the post acquisition July 1, 2010 assessment of 111.560 million boe. The biggest difference is the fact that NSAI has started to shift the possible reserves into the 2P category, with 15 wells on stream at the end of December versus only 6 wells in the July report. Proven reserves were up to 14.5 million boe or 167% from July, while probable reserves increased to 15.4 million boe or a 41% increase.

NSAI has shifted the type curve

We have made no changes to our 2011 or 2012 estimates to reflect the new reserve report. Our 2011 average production forecast remains unchanged at 3,100 boe/d with a projected 2011 exit rate of 5,000 boe/d. In 2012 we continue to expect rapid production growth with an average rate of 8,050 boe/d.

Valuation

Based on the new NSAI type curves we have re-run our valuation model and using the GMP price deck, we estimate the NPVs per well range in value from $1.2 million to $13.4 million based on the various type curves. With an inventory of ~900 (190 net) locations this generates total value of $1.9 billion or $4.50 per share. Given the low risk nature of the development we feel this is an appropriate valuation approach.

Increasing target price to $4.50 (was $3.85)

The reserve report clearly highlights that with its aggressive drilling program AEF will be able to convert the vast majority of its possible reserves into the 2P category by December 2011. We still see significant upside potential from increased EUR’s over the next few years based on improved well performance and recognition of competitor well results on offsetting acreage, where they are already indicating EUR’s per well that are anywhere from 20% to 50% higher than what AEF is currently being booked at. Further to that we see significant downspacing potential as the play will likely progress from 80 acre spacing to 60 acres and eventually 20 – 40 acre intervals. We also see upside in the Austin Chalk formation which could significantly increase the resource potential on its lands. We continue to view AEF as one of our top lower risk development stories with huge growth in volumes as management continues to forecast peak production from its current drilling inventory of 29,000 boe/d net to AEF by 2019. We reiterate our BUY recommendation and are increasing our target price to $4.50 (was $3.85), which indicates potential upside return of 50% from current levels.
Click to expand...


Also worth a read
Commonwealth Bank Global Markets Research
http://www.auroraoag.com.au/IRM/Company/ShowPage.aspx?CPID=1483&EID=45577481&PageName=Commonwealth Bank Global Markets Research


But as said above imo the key is being able to foward project valuations yourself to have advanced notice of buys and sells.
 

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