SUBJECT: Aurora Oil & Gas Limited – New Frac Technology Upside
IMPACT: Positive – Could improve EUR’s per well by at least 25%.
SUMMARY: Petrohawk Energy announced early success with a new frac technique within the Eagle Ford play. Schlumberger has developed a new stimulation technique called “HiWay” Flow-Channel Hydraulic Fracturing that fundamentally changes the way proppant fractures generate conductivity, allowing bigger flow channels and subsequently higher EUR’s per well in theory.
DETAILS:
· Schlumberger has spent the last seven years developing and testing this new technique on roughly 500 wellbores. Originally this technology was developed for tight reservoirs, but they are now expanding that to other types of formations including shale reservoirs. HiWay is a different delivery method and a different proppant. The combination of a degradable fiber (that breaks down at temperature and pressure in the reservoir) with sand pumped in a pulsing sequence in theory creates much higher conductivity in the reservoir.
· HiWay had never been pumped into a horizontal wellbore until Petrohawk tried it in the Eagle Ford shale play within the past four months (first job was pumped in October). Petrohawk has now completed between 10 to 12 wells with a HiWay frac on its Eagle Ford play, four of these wells now have meaningful production data that supports what looks like a significant increase in the potential EUR’s per well by at least 25%.
· From an Aurora perspective, Petrohawk plans to HiWay frac its first well at Black Hawk in mid-March. (Remember that the Black Hawk property is offsetting AUT’s acreage within the sweet spot).
· Petrohawk’s EUR’s at Black Hawk average 1.8 bcf in gas and 770,000 bbls of condensate (550,000 bbls) and other natural gas liquids (220,000 bbl), or 1,070,000 boe (6:1), and this forecast does not include the incremental upside for the HiWay fracs which could add another 25% to these estimates. Petrohawk’s current estimate of 1.07 mmboe is already a 37% premium to what Netherland Sewell is assuming for Aurora’s EUR’s of 780,000 boe on offsetting acreage on trend, before the potential uplift from the HiWay fracs. Assuming a 25% increase in the Petrohawk Black Hawk wells based on the HiWay fracs this would lead to EUR forecasts of 1,337,500 boe per well, which would be a 71% premium to what Aurora is currently assuming.
· We already see up to a 10 fold increase in Aurora’s reserves based on higher EUR’s, potential down spacing and from the uphole Austin Chalk, but if this new technology works we see further upside in this asset base. Petrohawk stressed that one of the benefits of the HiWay frac is that it is even a little cheaper per stage than a conventional hybrid frac as they use a little less sand. This will further improve the NPV per well for Aurora if this proves to be the route of choice for future development in the Eagle Ford.
· Aurora is expected to start trading tomorrow on the TSX under the new symbol “AEF”.