From Euroz
Comments Price Target: $4.50/sh
We view the key drivers to AUT’s relative outperformance in the oil and gas sector a function of consistency of results as well as a demonstration of
growth to reserves and production, that will drive increasing cashfl ows from this Q.
With application of reservoir management (via restricted choke) to the last 10 wells, production has consistently averaged 750-1000boepd (using 6:1
gas to oil conversion) for the fi rst 60 days.
We understand that restricted choke settings are maintaining tubing head pressures of several thousand psi: This has very positive implications for
deliverability in terms of low rates of decline and high cumulative production.
As we have seen through our analysis of well data to date, decline rates, for wells drilled since Morgan-1H, are consistently sub-10% month on month
over the fi rst 60-90 days of well life.
As per the table, AUT’s wells are clearly on course to produce an average of 200kbboe/well (of which av.60% liquids) in the fi rst year.
The results are generally exceeding our forecasts; as demonstrated by the ‘AVERAGE’ results generated from the AUT wells to date.
At US$90/bbl oil, US$50/bbl LPG and US$4.5/mcf commodity prices this would equate to ~US$14m in gross revenues versus average well capex (tie-in)
circa US$8m/well. This continues to suggest an average well payback of circa 6mnths.
This highlights the compelling economics of AUT’s acreage as well as alludes to the leverage to commodity price.
With new offtake infrastructure currently undergoing commissioning, we expect the Operator to relax choke settings to be more in-line with Rancho
Grande. This could have an uplift of up to 50% on gross production in our view.
Confi rmation of movement in reserves will also help consolidate current market valuation. 1P has more than doubled to 10.7mmboe and 2P has
increased to 22mmboe.
Notably the oil component has gone up 4mmboe (8%) on 3P numbers.
On this basis we expect the 83mmboe of 3P reserves to continue to migrate into 2P and ultimately 1P over the next 12-18mnths under the current drilling
programme.
We anticipate that the 3P is likely to grow to +100mmboe with subsequent reserve statements as Netherland & Sewell (independent reserves certifi ers)
acknowledge out-performance of AUT’s wells to their type-curves.
Additionally, we note industry trends for this part of the Eagle Ford are lobbying hard for future reserves to consider tighter well spacing for fi eld
development as well as higher EURs refl ective of improved completion techniques: This will have signifi cant bearing on reserves to the upside.
We have recently adjusted our model to factor-in LPG production (current av. 100bbls/mmscf) and impacts to revenues assuming a long term US$50/
bbl LPG price.
Our resulting valuation increases to $4.02/sh, though we are already seeing further upside noting that AUT’s wells are averaging higher than forecast oil
to gas ratios. We set a $4.50/sh price target.
Investment Case
On-going operational results continue to build on the quality argument for AUT’s Sugarkane Field interests. Sub-10% month-on-month decline rates
are exceptional and deliverability from these wells is underpinning best-in-play pay-backs. Consistency in results gives us a high degree of confi dence
for the economics of full-fi eld development as well as growth to all reserves categories.
We set a price target of $4.50/sh as we believe our assumptions remain conservative given the out-performance of AUT’s wells to date.
Furthermore, we expect as AUT’s acreage demonstrates profi tability within the next 18mnths, AUT will earn a premium noting that its growth to reserves,
production and cashfl ow is not compromised by geological risk and that fi eld production decline is some 10yrs away.
Euroz Securities declares that it has acted as underwriter to and/or arranged an equity issue in and/or provided corporate advice to Aurora
Oil & Gas Ltd during the last year. Euroz Securities has received a fee for these services.
trader8888
"Mir could you please foward me a copy as well, cheers."
where to
Hmmm I was always comfortable holding this with a support level of 2.90 which has been tested 3 times. Today thats been broken all the way to 2.81 and the volume is disgraceful to say the least, Im still hugely keen on the stock but if it closes below 2.90 are the technical s getting the better of it??
Dont gte me wrong still like the stock just confused as to why the down trend.
Activating many a stop loss triggers on the way must be compounding the situation
Activating many a stop loss triggers on the way must be compounding the situation
this isn't about aut only have to construct a 'watchlist' to see all non-aussi based oil is fairing badly. I imagine this couldn't have been a worse time to try and get good news releases across!
Forget the good fundamentals, today the sp is in the hands of the stop losses below the multi-touch support level of 2.90. It's such an obvious place to put a stop loss, I wouldn't be surprised if the sp rebounds when enough people have been booted out of their holding - a failed breakdown. We shall see!
Now down to $2.77....amazing hey... there must be another story we aren't hearing?? Oil is going great and AUT is going great fundamentally... why people rushing off? 6 times more volume of sellers. :S Really weird. When should we plunge more money in?
1. Check.How to avoid the trap;
1. Dont borrow to invest.
2. Dont set a stop loss.
3. Don't think you can outsmart the system without resolve.
4. If the fundamentals are sound. Hold.
5. Lemming rushes are there from time to time and usually are buying opportunities but only when used in conjunction with 1 to 4.
1. Dont borrow to invest.
2. Dont set a stop loss.
3. Don't think you can outsmart the system without resolve.
4. If the fundamentals are sound. Hold.
5. Lemming rushes are there from time to time and usually are buying opportunities but only when used in conjunction with 1 to 4.
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