AUT - Aurora Oil and Gas
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Slipperz, nice post and well constructed.
I would only add that all the capital required for drilling in 2011 is not required at once, its only required as each well is spudded. So cash flow will fund most. The very beginning of 2011 things might be a bit tight, but if we have 8-10 functioning wells at current rates , a debt facility could easily be arranged.
AUT have said they see minimal requirement for any capital raising and in all likely hood future development would be funded through cash flow and a debt facility if required. I wrote them an email and that was the response a few months ago.
Got to say despite Pattersons and you aiming for 90 odd cents in 2010, im confident imo once we push through the $1 hurdle we should be up around $1.35 give or take 10-15c, if 9 of the wells are functional and a fix or redrill
is used for Kowalick.
Sooner or later though with such high % of successfull wells this will get built into the price and we may see a surge well beyond that level. I mean look at AZZ sitting over there with who knows how much production on 80c. It suddenly got re-rated of its own accord and cought everybody short.
One things for sure we are in for a very interesting and looks like being incredibly profitable next 3-24 months.
I would only add that all the capital required for drilling in 2011 is not required at once, its only required as each well is spudded. So cash flow will fund most. The very beginning of 2011 things might be a bit tight, but if we have 8-10 functioning wells at current rates , a debt facility could easily be arranged.
AUT have said they see minimal requirement for any capital raising and in all likely hood future development would be funded through cash flow and a debt facility if required. I wrote them an email and that was the response a few months ago.
Got to say despite Pattersons and you aiming for 90 odd cents in 2010, im confident imo once we push through the $1 hurdle we should be up around $1.35 give or take 10-15c, if 9 of the wells are functional and a fix or redrill
is used for Kowalick.
Sooner or later though with such high % of successfull wells this will get built into the price and we may see a surge well beyond that level. I mean look at AZZ sitting over there with who knows how much production on 80c. It suddenly got re-rated of its own accord and cought everybody short.
One things for sure we are in for a very interesting and looks like being incredibly profitable next 3-24 months.
The other way to work it out on your coaster is:
Theres roughly $1.6 Billion profit worth of boe liquids at $50 net per boe
And $600M worth of Gas at $3 net per Kcfg
Total $3.2B profit in the ground based on 2C reserves.
Takes say 15 years to extract and extract 80% of 2C reserves , reaching steady state optimal production levels in say 5 years from now.
So in 2010, 10 wells, 2011 - 25 wells, 2012 50 wells, 2013 75 wells Then 75 wells p.a. from then on roughly.
80% of $3.2B = $2.56B / 15 years = 170M p.a. absolute minimum worst case scenario in my opinion. Remmebr this is based on $50 per boe and only extracting 80% of 2C over a long period of time.
At 170M p.a. profit, with PE of 12 = mcap over $2Billion which is 15x current share price. Taking around 4 years to reach that sp, and assuming AUT fails to develop new acerage elsewhere.
This assumes use of debt facility rather then CR for any capital required.
If they can manage to get 100% of 2C sooner then clearly we would be approaching a $3B mcap if PE was 12. About 23x current sp.
DYOR, there may be errors and misjudgments. Seek expert advice. This is very high risk and does not consider your circumstances.
Theres roughly $1.6 Billion profit worth of boe liquids at $50 net per boe
And $600M worth of Gas at $3 net per Kcfg
Total $3.2B profit in the ground based on 2C reserves.
Takes say 15 years to extract and extract 80% of 2C reserves , reaching steady state optimal production levels in say 5 years from now.
So in 2010, 10 wells, 2011 - 25 wells, 2012 50 wells, 2013 75 wells Then 75 wells p.a. from then on roughly.
80% of $3.2B = $2.56B / 15 years = 170M p.a. absolute minimum worst case scenario in my opinion. Remmebr this is based on $50 per boe and only extracting 80% of 2C over a long period of time.
At 170M p.a. profit, with PE of 12 = mcap over $2Billion which is 15x current share price. Taking around 4 years to reach that sp, and assuming AUT fails to develop new acerage elsewhere.
This assumes use of debt facility rather then CR for any capital required.
If they can manage to get 100% of 2C sooner then clearly we would be approaching a $3B mcap if PE was 12. About 23x current sp.
DYOR, there may be errors and misjudgments. Seek expert advice. This is very high risk and does not consider your circumstances.
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Mir, if the 52mm BOE are in fact on AUT's acreages after farm out then it's pretty much a multiply by 5 equation on my valuation.
That's a pretty big number from where we are today!
And Condog I guess if all ten wells come in with good results by Q42010 there may be lenders willing to bridge AUT some finance to get the drilling campaign underway without any further dilution at all.
It's really only that first quarter 2011 things are going to be a bit tight and once we have a few wells producing at 100% it's all blue skies as the drilling program accelerates.
That's a pretty big number from where we are today!
And Condog I guess if all ten wells come in with good results by Q42010 there may be lenders willing to bridge AUT some finance to get the drilling campaign underway without any further dilution at all.
It's really only that first quarter 2011 things are going to be a bit tight and once we have a few wells producing at 100% it's all blue skies as the drilling program accelerates.
I'm amused at all the calculations that show how much profit could be made, relating it as earnings available for a return to shareholders and suggesting an SP based on this calculation.
Take a deep breath and remember that oil prospectors are just that. Prospectors. They will apportion a percentage of earnings to pay shareholders to keep them happy but they will continue to allot a major portion of their available funds towards more and more prospecting. It will take one positive result after another for some of the suggested SP values to be achieved.
Take a deep breath and remember that oil prospectors are just that. Prospectors. They will apportion a percentage of earnings to pay shareholders to keep them happy but they will continue to allot a major portion of their available funds towards more and more prospecting. It will take one positive result after another for some of the suggested SP values to be achieved.
Glad to entertain you Nokia - i been right so far. double+ my money so im not complaining and we only so far have two wells flowing. I was publicly bagged a few months ago for suggesting AUT was the pick of the Eagleford players. My what do you know, have a look at the graph above.
Right now its still the pick by a very very big Margin. Geese even agents bought into it. And hes about as big an ADI fan as you can get.
Likewise im not to sure that Conoco, Exoon, Woodside, Pioneer, EOG, Petrohawk, shareholders all agree with you, or the hundreds of prosepctors that have been gobbled up in M&A activity by some of these. They all started as "prospectors".
Nokia from an ROE and fundamental value perspective, i truly hope they do not return any money via dividends. Certainly the way they are going so far, they can reinvest that money pre-tax and earn significantly more ROE on it then i can elsewhere. When it reaches the point where they cannot I wil have started a selling pattern and will move the cash elsewher.
So you keep luaghing, cause i know i am withthe profits that have rolled in so far.
Right now its still the pick by a very very big Margin. Geese even agents bought into it. And hes about as big an ADI fan as you can get.
Likewise im not to sure that Conoco, Exoon, Woodside, Pioneer, EOG, Petrohawk, shareholders all agree with you, or the hundreds of prosepctors that have been gobbled up in M&A activity by some of these. They all started as "prospectors".
Nokia from an ROE and fundamental value perspective, i truly hope they do not return any money via dividends. Certainly the way they are going so far, they can reinvest that money pre-tax and earn significantly more ROE on it then i can elsewhere. When it reaches the point where they cannot I wil have started a selling pattern and will move the cash elsewher.
So you keep luaghing, cause i know i am withthe profits that have rolled in so far.
Stick to your guns, Condog - at least you are presenting quantified figures that give some idea of what the future sp might be.
I'm not sure where your PE of 12 comes from, but looking at your suggested income stream of $170m pa for 15 years, the net present worth of this, assuming a discount rate of 8%, is 170m x 8.559 - ie an effective PE of 8.559, say 8.6.
This is well below 12, but still results in a healthy prognosis for the sp, without any consideration given to as yet unknown sources of future income.
I'm not sure where your PE of 12 comes from, but looking at your suggested income stream of $170m pa for 15 years, the net present worth of this, assuming a discount rate of 8%, is 170m x 8.559 - ie an effective PE of 8.559, say 8.6.
This is well below 12, but still results in a healthy prognosis for the sp, without any consideration given to as yet unknown sources of future income.
The income producing oil and gas sector on the ASX has a sector average PE of 21. The all ords has a PE of 11.2. To be conservative i chose 12 for my calculations. Could of picked 8, 10, 15 or any number. But gone with 12 as i prefer surpirses to the upside.
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The reason I did my calc were twofold.
Primarily it was as I now have a very substantial holding I am looking at potential exit points.
Usually I swing trade over a period of a few weeks or months as a company is going into a growth phase.
For example EXT around this time last year, ORE and it's lithium deposit, AZZ from mid to late last year and recently UNS as it redomiciled to the US.
Now I am in with AUT and as has happened with all the aforementioned stocks they ran very hard then pulled back just as fast. So I attempted to extrapolate a bit of potential valuation of AUT from the company presentations to determine my exit strategy.
Initially my thinking was a quick profit as the frac results from the free carry came through and then on to greener pastures but having looked a little closer at the potential here I may hold on for a couple of years or more.
Oh and secondly it always stimulates a bit of healthy debate when you put a valuation on a message board which can help to expose a companys weaknesses.
If the companys greatest weakness is in being a prospector well happy days cos they seem to have put their prospecting pegs into some pretty choice acreages.
Primarily it was as I now have a very substantial holding I am looking at potential exit points.
Usually I swing trade over a period of a few weeks or months as a company is going into a growth phase.
For example EXT around this time last year, ORE and it's lithium deposit, AZZ from mid to late last year and recently UNS as it redomiciled to the US.
Now I am in with AUT and as has happened with all the aforementioned stocks they ran very hard then pulled back just as fast. So I attempted to extrapolate a bit of potential valuation of AUT from the company presentations to determine my exit strategy.
Initially my thinking was a quick profit as the frac results from the free carry came through and then on to greener pastures but having looked a little closer at the potential here I may hold on for a couple of years or more.
Oh and secondly it always stimulates a bit of healthy debate when you put a valuation on a message board which can help to expose a companys weaknesses.
If the companys greatest weakness is in being a prospector well happy days cos they seem to have put their prospecting pegs into some pretty choice acreages.
gerkin02
the 52 million barrels is for the 10000 net acres & not the 52000 acres see page 21 on the aut presentation.
"52 million by 85 dollars is $4 420 000 000.00"
"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..."
Slipperz
this is what i posted on HC a few months ago.
I've just thrown my first beer coaster in the bin as i misunderstood the petrohawk presentation.here's my second attempt but the end figure doesn't alter much.
in the petrohawk presentation their krause #1h well(just to the east of our acreage) is 3025' in length & they give that an est. EUR: 500 - 750 Mboe per well(this is where i went wrong). our kennedy well with only 2000' in length had almost identical IP to krause .
our future wells are going to be at least 2 to 3 times the length of kennedy.so using 2 time kennedy length & the lower of the est. of 500 Mboe our future well could have est. EUR: 1000 Mboe per well(or 1MMboe).
so based on aut 9659 net acres they need to drill about 100 wells (100 acre well spacings)at about est. EUR 1MMboe per well gives a total of 100 MMboe.
using $70 per barrel x 100MMboe = $7B
less 25% to land owners = $5.25B
less 15% costs? = $4.5B
less 100 wells at $10M ea to be generous $1B = $3.5B
less 30% tax = $2.45B
so $2.45B div 220M shares gives AUT $11.13 a share.
or another way of looking at it.
at $10 per barrel in ground value 100 MMboe = $1B div 220M shares you get $4.54 per share.
if you use $20 per barrel you get $9.09 per share.
i hope this is more accurate.
comments welcome (I'm expecting to be shot down)
http://i42.tinypic.com/2vbapeh.png
the 52 million barrels is for the 10000 net acres & not the 52000 acres see page 21 on the aut presentation.
"52 million by 85 dollars is $4 420 000 000.00"
"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..."
Slipperz
this is what i posted on HC a few months ago.
I've just thrown my first beer coaster in the bin as i misunderstood the petrohawk presentation.here's my second attempt but the end figure doesn't alter much.
in the petrohawk presentation their krause #1h well(just to the east of our acreage) is 3025' in length & they give that an est. EUR: 500 - 750 Mboe per well(this is where i went wrong). our kennedy well with only 2000' in length had almost identical IP to krause .
our future wells are going to be at least 2 to 3 times the length of kennedy.so using 2 time kennedy length & the lower of the est. of 500 Mboe our future well could have est. EUR: 1000 Mboe per well(or 1MMboe).
so based on aut 9659 net acres they need to drill about 100 wells (100 acre well spacings)at about est. EUR 1MMboe per well gives a total of 100 MMboe.
using $70 per barrel x 100MMboe = $7B
less 25% to land owners = $5.25B
less 15% costs? = $4.5B
less 100 wells at $10M ea to be generous $1B = $3.5B
less 30% tax = $2.45B
so $2.45B div 220M shares gives AUT $11.13 a share.
or another way of looking at it.
at $10 per barrel in ground value 100 MMboe = $1B div 220M shares you get $4.54 per share.
if you use $20 per barrel you get $9.09 per share.
i hope this is more accurate.
comments welcome (I'm expecting to be shot down)
http://i42.tinypic.com/2vbapeh.png
MIR / Slipperz / Wrongun- always good to read peoples valuations. Everybody does them so different, but the one thing in common here is so far no one has come out with a valuation that doesnt make the upside in aUT look massive. Every which way you calculate it they seem to be ready to rocket to unheard of valuations in the next months and year. Asumming of course they have no big accidents, failures or dusters. All seem minimal, but with gas you never know.
Mir,
It's hopelessly difficult to do a valuation, though it is possible to put some potential figures together using figures suggested by the JVPs, guessing %recoverable, assuming average condensate/gas ratios, guessing 'in the ground' values for condensate and gas.
What is clear from S/L is that the condensate ratio can vary considerably.
I plugged in some figures after the Hartleys report assuming that Longhorn, Ipanema and S/l would average 250bbls per 1mmcfg, recoverable of about 1.75tcfge (edit - for S/L: the other acreages were just assumed to be scaled up) and $1.5/kcfg & $15/bbl and it came out a bit over AUD8 per share.
What we do know from the broker reports is that it is likely that a new reserves appraisal will be made later in the year.
At this stage, the potential for both companies is looking to be 10x. Perhaps more.
But, it's very early days. What we do not seem to have is any form of exploration risk. It's all completion risk and Hilcorp has made its money through re-completions - just look at the TRRC permits. The problem with Kennedy was most probably caused by the previous TCEI frac - looking back at the reports, the latest of the TCEI fracs had to be abandoned because of pressure levels. Kowalik was not designed for fraccing. Weston seems to have gone like clockwork. The drilling of Easley seems to have encountered the same problems encountered by TCEI with Weston. Hilcorp seems to have been able to know when to call a halt and not to lose equipment. The drilling of Morgan and Rancho seems to have gone without any melodrama - they just did it.
I've been invested in this project for over 4 years. We've seen nothing like this performance before.
Waiting another 6 - 12 months to get a proper feel for the financial potential is nothing. The more wells that they drill, the more news flow there will be. AUT was not previously suggesting more wells on S/L in 2010. That changed in just a few weeks. What has changed in that short time? We can only speculate. Expectations for the 2 wells in trend with Kowalik? New views on depletion rates?
Too early to think about exit strategies imo. Let the story unfold.
It's hopelessly difficult to do a valuation, though it is possible to put some potential figures together using figures suggested by the JVPs, guessing %recoverable, assuming average condensate/gas ratios, guessing 'in the ground' values for condensate and gas.
What is clear from S/L is that the condensate ratio can vary considerably.
I plugged in some figures after the Hartleys report assuming that Longhorn, Ipanema and S/l would average 250bbls per 1mmcfg, recoverable of about 1.75tcfge (edit - for S/L: the other acreages were just assumed to be scaled up) and $1.5/kcfg & $15/bbl and it came out a bit over AUD8 per share.
What we do know from the broker reports is that it is likely that a new reserves appraisal will be made later in the year.
At this stage, the potential for both companies is looking to be 10x. Perhaps more.
But, it's very early days. What we do not seem to have is any form of exploration risk. It's all completion risk and Hilcorp has made its money through re-completions - just look at the TRRC permits. The problem with Kennedy was most probably caused by the previous TCEI frac - looking back at the reports, the latest of the TCEI fracs had to be abandoned because of pressure levels. Kowalik was not designed for fraccing. Weston seems to have gone like clockwork. The drilling of Easley seems to have encountered the same problems encountered by TCEI with Weston. Hilcorp seems to have been able to know when to call a halt and not to lose equipment. The drilling of Morgan and Rancho seems to have gone without any melodrama - they just did it.
I've been invested in this project for over 4 years. We've seen nothing like this performance before.
Waiting another 6 - 12 months to get a proper feel for the financial potential is nothing. The more wells that they drill, the more news flow there will be. AUT was not previously suggesting more wells on S/L in 2010. That changed in just a few weeks. What has changed in that short time? We can only speculate. Expectations for the 2 wells in trend with Kowalik? New views on depletion rates?
Too early to think about exit strategies imo. Let the story unfold.
mir,
interesting comment re the rig. If so, that seems to further de-risk the operations.
Good to actually get back.
It is possibly reading too much into the EME RNSs re their two capital raisings but I get an impression that the 2nd one might have followed a decision on further drilling on S/L this year. EME certainly made a point about funding its 3% contribution.
Wishful thinking says that they might be getting quite excited about what they have seen.
interesting comment re the rig. If so, that seems to further de-risk the operations.
Good to actually get back.
It is possibly reading too much into the EME RNSs re their two capital raisings but I get an impression that the 2nd one might have followed a decision on further drilling on S/L this year. EME certainly made a point about funding its 3% contribution.
Wishful thinking says that they might be getting quite excited about what they have seen.
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turnbull started drilling on the 1st april, on the 25th april they were moving the rig off that location, imho demonstrating yet again hilcorp as a efficient and brilliant operator and further demonstrating that well costs are very much at their lowest common denominator.
wont be long before turbull 2 is completed and there is a permit for a further well out there in turnbull 3
great story unfolding for aut..
24 days is fantastic, big cost savings if they keep going at this rate. Definitely need a second frac crew to play catch up to the drilling rig.
This story is simply too good to be true at present. Holders must be extatic with progress.
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Has anyone taken account for the $AUD in their valuations?
I'm still learning about the topic, however, all of AUT's NPV/well etc are in $USD, as US interest rates pick up (considering we're talking 10+ years here) surely that would mean greater revenue for AUT in $AUD?
Or does it not matter if it's all done in $US
I'm still learning about the topic, however, all of AUT's NPV/well etc are in $USD, as US interest rates pick up (considering we're talking 10+ years here) surely that would mean greater revenue for AUT in $AUD?
Or does it not matter if it's all done in $US
It does matter and to get exact calcs yes you should factor it in. But given its so close and still some analysts are crowing about parity of the AUD, ive deliberately left it out of mine. If we stay at parity or below its an upside bonus.
Also given we are calculating predicted rather then actual earnings theres no real way to be precise enough to bother. We are mainly aiming to get a good guide of where it might head, rather then guess or go in blind. The comforting thing is usually if you post calcs you get hammered for tiny insignificant innacuracies, by people who cant be bothered or dont know how to calculate it out. That hasnt happened in here. Most are providing there own calcs and the one thing in common is they all seem to point to fantastic upside.
