AUT - Aurora Oil and Gas

condog said:

Agent is your camera broken?

I was hoping for some pics soon of frac crews all over morgan and easily.

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i have a lot of regional photos but atm i am not inclined to post them, my view is that the info from the region is pretty much up to date now, and excellent in nature and without doubt making the case for some serious upside about to come up on this jvp..

imho when the jvp state there is an ongoing frac program about to happen, its spot on

I thought After Weston AUT announced the frac crew had to leave the AMI for 1 pre booked job of two wells, and then would return for continuous fraccing on behalf of hilcorp.

I am certain now its returned and is currently fraccing morgan. In fact theres a few murmors of a second frac ready to go, not sure if they are are just ready for post morgan and the one crew or they have a second crew about to start.

If they do have a second frac crew then the drilling program will need ot be accellerated, or they will be twiddling thumbs in later 2010.

Another good day for AUT and these should imo continue.

Its still only EV valued at $1.39 per 2c boe

With estimated net sales at approx $50+ per boe the markets only priced in a 3% chance of meeting its 2c reserves.

imo based on other oillys att this stage it should soon as it sures up production be operating at well in excess of 10%. Thats only opinion.

At 10% of 2C sp shoiuld be approx $2.04 my my amatuer calcs. DYOR

Note these are rough beer coaster cals.. so do noy make decisions based on this. Would be good is someone else would cross check these ta.

More conservatively , even at 5% it should be arond $1

patersons upgrade AUT to 92c



RESEARCH NOTE ATTACHED

Aurora Oil and Gas Ltd (AUT) $0.53

Recommendation: BUY



Drilling Ahead in the Eagle Ford

Investment Highlights

· Steady progress achieved in Hilcorp farm-in program. Local operator Hilcorp is making solid progress through its farm-in works, with 7 of the 10 farm-in commitments completed/underway. Progress to date has included the successful stimulation and flow of Kennedy #1H and Weston #1H wells and the current drilling/frac operations at Easley #1H (awaiting frac), Morgan #1H (frac underway), Rancho Grande #1H (awaiting frac) and Turnbull #1H (drilling works underway). Remaining farm-in works include a further 2 wells on the Longhorn AMI and a 1 on the Ipanema AMI. Completion of the fully funded program will unlock substantial value, providing reserves definition and solid cash-flow.

· Flow rates demonstrate productivity of the acreage. Production results from the Kennedy #1H and Weston #1H have de-risked the acreage with IP’s of 19.1mmscfe/d and 12.1mmscfe/d, respectively, at a 12:1 ratio and 1.25 calorific content. The subsequent 30 and 60-day production rates are indicative of a highly productive shale, comparing well to regional averages. Looking ahead, the JV is targeting completion over longer productive sections, averaging ~4,000ft, which should provide a higher flow rate and EUR per well.

· Significant acreage position. AUT holds a post farm-out interest of 9,620 net acres across the Sugarloaf (10%WI), Longhorn (25%WI) and Ipanema (30%WI) Areas of Mutual Interest (AMI’s). In 2009 an independent assessment of the assets provided an estimated contingent resource which is equivalent to 185bcf of gas and 34mmbbls of condensate net to AUT on a post-farmout basis.

· Regional activity drives value. Ongoing M&A activity, drilling and production results drive the value of the shale and AUT. Recent news includes Pioneer’s Handy Gas Unit #1H testing at 7.7mmscf/d and 2,030bcpd and entry of Shell and BP into the shale.

· We maintain our BUY recommendation with a revised price target of $0.92/sh based on our risked assessment of a full field development across AUT’s 3 x AMI’s.

MIR

its a nice peice of info, but its still super conservative, giving only a 10% chance of 2c reserves. I personaly think Eagleford deserves a risk premium of far more then 10% now. Especially with hilcorp on board.

But i spose it will draw a crowd anyway at almost half its fully risked valuation.

Ahhh I'm loving this outfit.

They have a major drilling ten wells to prove up their acreages for free that will provide a tidy revenue stream for future drilling.

The eagleford is still running close to 100% success rate for drilling across a huge swath of Texas so you would have to be an institutional fund manager or retarded not to see that the risk is practically nil on drilling failure.

And the frac results are going to start cascading in soon week on week.

The sell queue is getting smaller and rightly so. You would need to be pressed for cash or flat out stupid to be selling AUT next week.

We're all going to make some serious cash in the next few months as well we should

Slipperz said:

Ahhh I'm loving this outfit.

They have a major drilling ten wells to prove up their acreages for free that will provide a tidy revenue stream for future drilling.

The eagleford is still running close to 100% success rate for drilling across a huge swath of Texas so you would have to be an institutional fund manager or retarded not to see that the risk is practically nil on drilling failure.

And the frac results are going to start cascading in soon week on week.

The sell queue is getting smaller and rightly so. You would need to be pressed for cash or flat out stupid to be selling AUT next week.

We're all going to make some serious cash in the next few months as well we should

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I think either aussie investors are just more conservative or there is not enough exposure to the eagleford play here. Coverage by our media would do wonders for the sp imo. The presentation AUT had a week ago was a nice step for bringing in more awareness.

Slipperz i love your post , its so honest, direct and true. Politically incorrect, but true.

Yes funnily enough the eagledford has somewhere around a 100% success rate yet AUT is priced at 3-5% of 2C reserves depending how you calculate it.

At 10% it would be stupidly cheap, given the susccess rate.

Im banking on the fact by the time we have 10 wells with say 9 successful and Kowalick resolution we should be sing a price upwards of 30-40% of 2C which is 6-9 times currents sp. Not a bad multiple. This will hopefully imo present me with a massive tax problem, which i will happily contract my accountant to sort out.

Ive been buying up the last week or so , selling other stock at profits losses and evens to grab more AUt before the frac results come through and get priced in.

New high today, is always nice, not surprising and will imo soon be replaced. Sellers drying up nicely and buyers continually cueing up. Its now well and truly a case of if you want them you pay the price or your not getting them.

Anyone sellign clearly has no idea whats about to transpire in the next 60-90 days.

Speaking of exit points...

i've never actually sold shares before with a plan of exit.. and would love to set one for this stock.

having never had really any forms of exit before, let alone one with an oil company.. what are the best times to usually leave? and since its a 20% share, would a buy out be in the future??

things are looking very good! i'm doing similar things condog, and quiet happy with the progress i have made so far..

obviously also not looking at selling anytime soon, but what would be a good point to start looking at? i like to research into the why's before i do things!

Yes I'm also wondering what woud happen to shares if a buyout occurred. Small cap players like EUK, AZZ, AUT, ADI and the likes are all set up to sell out with a nice profit in the play that they are at. I would think merger before sell out, but either way....any advice from senior investors about mergers and aquisitions and what to do if such things happen ?

Everybodies in a different boat. This is not advice as everyones circumstances are different.

For investors with a lot of money in it in aust , a buyout would suck, as youd trigger a massive capital gains tax event all in one year.' They would be wanting to hold on long term and sell down gradually starting after the 12 months and then sell enough each year to spend, or invest elsewhere without triggering a massive CGT event.

For smaller investors its really your call CGT, probably not an issue once you go past the 12 month mark. Depending on if your carrying losses forward CGT may not be an issue at all even within 12 months.

Certainly im aiming to hold this for the long term, whilever they are actively growing the company and will gradually sell a bit each year. I see at least imo 4-5 years really good growth in these leases, possibly up to 10 years depending on what well spacing they achieve. If they drill right down to one well per hundred acres i think we have a good decade just from this play alone.

It also depends how your structured for example are you in a family trust, company SMSF, husband and wif. Most people are individual holders . I find for indiduals that are married if you go into a play like this its sometimes best to buy half in your name and half in the wifes name, so you can sell twice as many with the same net tax effect, depending on other income of course.

At some point thes companies ROE and tapers and it becomes preferable to be looking to divest into some newer kids on the block again to look for the higher growth.

A buyout is always on the cards and unfortunately if it happens CGT might smack half your profits if its earlier then later.

For small holders who dont have enough to worry about CGT problems a philosophy i used successfully is as soon as you find a company that far better its time to start moving cash out. Or sometimes i sell my original capital when it doubles and leave the monopoly money invested. Reinvest your original capital inot something else.

Theres too many options and circumstances to list. We cant give advice, but i hope some of this helps. Lets not take over the AUT thread with too much general investment discussion though.

Look at it this way - its a nice problem to have.

The JVPs are talking about scaling up in 2011. That would seem to be their game plan at the present.

There is always the possibility of future dividends. If they eventually pay out a reasonable portion of their profit as a dividend, the yield, based on the current sp, could be very attractive. It is conceivable that accumulated dividend payments could exceed the original investment.

esteon - The ADI Q report indicated possible accelleration in 2010

wrongun - I hope like hell they dont pay dividends for a long time. They can grow that money far faster then we can, and being earnings from the US, they may or may not be franked - im not sure on that one. Last thing I want is unfranked dividends.


Kepp the lot reinvest please, gro the co and then worry about dividends 5-10 years time.

AUT - closed at 58c yesterday

I been saying since 27c its one of the best shares ive ever seen

The difference between now and 27c is its very much derisked, with two wells flowing to sales, hilcorp taken over as operator and setting a cracking pace.

This is not advice or a reccomendation but its my personal opinion and I will express it. Right now even at 58c this is imo rediculously cheap given where I think its headed.

Pattersons put out a very conservative valuation this week at 92c fully risked. In otherwords if it goes well as it looks like it will it should massively surpass that figure.

Fully risked I value it at $1.41 right now and very soon that will change as these fracs come on line, if they are successful.

Definitely seek expert advice and do your own research as gas and oil is risky. But the rewards are there for investors with the right risk tolerance.

You can clearly see the effect of AUT development starting to take shape. Comparison to AZZ. AZZ is the bottom line

Another valuation factor in the AUT equation is the price of our product!

Natural gas futures are really starting to pick up. In their most recent presentation AUT stated that they expect to be receiving revenue by Q4 2010 once Hillcorp have recouped their drilling expenses.

Looking at the price of $5.46 for December delivery that equates to a 25% premium in less than 3 quarters.

http://www.cmegroup.com/trading/energy/natural-gas/natural-gas.html

The key is up top, AUT is the dark Black line.

AUT compared to peers. Its pretty clear why ADI has had a tough few weeks, having jumped the gun a bit early in comparison. EKA is looking cheap at present. But for me AUT is right now the best bet by far.

AZZ may soon become the best bet, but they are very pricy and have to really sure up a few wells to justify thier price tag.

For those that think AUT has now got too far ahead of ADI, i think this graph shows it really has only just caught up to ADI early dash and now we may see AUT start to establish its gap.

For New investors interested AUT put out a new presentation on the ASX on 22nd April . The table below gives a good update of where things are at. However turnbull 1 has been drilling for a whil and Turnbull 3 application is approved. Morgan frac is almost complete. And Easley about to start.

All these wells are free carried to AUT with Hilcorp abel to recover costs from inital sales prior to distributing income. 10 free carried wells in total. All scheduled to be finished in 2010. Although at present it looks like they will be finished way ahead of schedule.

condog said:

For New investors interested AUT put out a new presentation on the ASX on 22nd April . The table below gives a good update of where things are at. However turnbull 1 has been drilling for a whil and Turnbull 3 application is approved. Morgan frac is almost complete. And Easley about to start.

All these wells are free carried to AUT with Hilcorp abel to recover costs from inital sales prior to distributing income. 10 free carried wells in total. All scheduled to be finished in 2010. Although at present it looks like they will be finished way ahead of schedule.
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Morning Condog,

Firstly respect to all who have served and are currently serving in our armed forces, Lest We Forget.

Been doing a few back of the envelope equations regarding the next twelve months which are really going to be the the company making phase for AUT.

As I see it we are on the cusp of a really exciting two years or so for AUT.

Firstly when will Hillcorp have recovered their drilling expenses and revenues start flowing to the JVP?

In the latest presentation the company put a NPV of 16 million per well with oil priced at 70 dollars a barrel and gas at 4 dollars per mcf.

We need to add 20% valuation into that equation due to the rising price of oil and gas and given gas future prices and rising economic activity in the US and Asia I'm going to add another 5% premium on energy prices and add 25% to the NPV of each well and round it out to 20 million per well per annum.

20 mm pa / 365 days is $54 794 per day and with ten wells in production that equates to $547 940 per day.

70 million ( with the well costs estimated at 7 million per well including frac) by $547 940 is 127 days or a touch over four months.

With two wells already producing and more coming onstream early Q42010 should see revenues flowing to the JVP.

6 wells at 10% 12 million pa
2 wells at 25% 10 million pa
2 wells at 40% 16 million pa leaves us with 38 million pa income form the freecarry or 9.5 million per quarter.

Now we come to the capital requirement.

Again according to the most recent presentation the company plans to drill about 12 wells in 2011 or one a month which is in line with the drilling campaign so far this year.

That will require 28 million in capital for the first quarter 2011 less 9.5 million from completed wells leaving AUT about 18 million short for Q1 and then further capital requirements into Q2 until revenue increases to cover drilling costs.

I'd say we're looking at a cap raising of around 30 million. With the acreages proved up and flow rates confirmed by Q42010 shareprice should be around the 90c to dollar range as per the most recent Pattersons valuation which will give us dilution of 30 million shares or so bringing total shares on offer to around the 260 million mark.

Final valuation?

With no further need for dilution and holding 18% of 51 971 acres with an independently certified 2C resource estimate of 52 million barrels of oil equivalent...

52 million by 85 dollars is $4 420 000 000.00
divided by 18% is 795 600 000
divided by 260 million shares is $3.06 per share.

Shareholders should see this value realised in less than 10 quarters with the accelerated drilling program in 2012.

All IMHO and DYOR of course.