AUT - Aurora Oil and Gas

[suhm]

Hey condog, you are saying that you are being conservative by decreasing the boepd expected per well but you don't seem to be factoring any declines in production for your calculations.
Even though declines are decreasing due to smaller choke size used, even conventional oil and gas fields have declines although less than these tight gas/condensate play.
Not saying that it might not be possibly undervalued, just not sure yet.

 

[condog]

Hey condog, you are saying that you are being conservative by decreasing the boepd expected per well but you don't seem to be factoring any declines in production for your calculations.
Even though declines are decreasing due to smaller choke size used, even conventional oil and gas fields have declines although less than these tight gas/condensate play.
Not saying that it might not be possibly undervalued, just not sure yet.

Each invvestor needs to decide for themselves whats conservative and whats not. To me with a current average post royalty flow of 787 BOEPD, i regard 500 as very conservative. Rememebr we are only talking about a single point in time being 31 Dec 2010. And with recent results i cant see that average getting down to 500..

Theres basically 60 more wlls to be fracced and flowed to sales between now and Dec 31, which imo will keep this average up. I agree with you as we go forward declines need to be built in, but not yet. The average reported flow less then a wekk ago is 787, so thats the best information we have available, and while these 18 wells already flowing may decline, thats included in that average.

Additionally they have quoted 787 as post royalty. My 500boepd is pre royalty.

 

[condog]

condog it looks pretty good, similar to mine actually.

I was going to say you have'nt added the CAPEX in to drill the wells, but you updated your post. Personally id prefer using them in my calcs, but each to their own.

When wells are being repaid in months rather then years, if you add Capex then youd also have to add in 6 months production. Its complicated and not necesary. Being roughly right without adding the CAPEX is fine imo.

Remember im valueing a point in time not a whole year. I personally dont believe its right to value this using annual figures, as its changing too rapidly.

 

[rcm617]

I think somewhere along the line you do have to allow for capex, whether its upfront or via depreciation, after all the wells do eat up all the cashflow for the first few years.
I also cant agree that payback is within 6 months. The cashflow of only $640,000 in the quarterly suggests to me that the first five wells still arent paid off, even after more than a year for the first.
I think when working out boe pricing, a more conservative figure than $95 might be appropriate, as at a 6 to 1 figure you're only getting about $40 for the gas portion.
I'd agree with your 500boepd for the first year, however after this there will be the proportion of older wells producing substantially less, and this proportion will be increasing every year. From the rrc figures after nine months the average production for the first five wells is 257 boe per day (worked out on a 12/1 basis), so I would think the average for the second year from the older wells, would be struggling to be over 200 boepd even with improved techniques.
These figures are all pre royalties. I agree that techniques are improving, however at the moment the quantum of longterm increases in production from these are purely speculative.

 

[estseon]

Re production of 1,660 boepd at end of April. That is from the 18 at the end of March PLUS:

"There are currently a further 5 wells that have been fracced and are on production before the end of April 2011"

So, 23 wells in production at end of April.

The information is there in the Quarterly report (page 2 2nd full bullet point) but it is a bit of a job to piece it together.

Then it becomes confusing because the tables summarising activity show, in total, 15 wells including the 3 wells brought into production. The statement: "At the end of the reporting period there were 18 wells on production, 11 ready for stimulation, 4 wells being drilled and 2 wells being stimulated" includes some double counting - I cannot easily reconcile it with the activity reports.

In total 12 wells, including Gilley, which required a workover, remained to be put on production. Carter Salge was cased in April. The other 10 were all drilled and cased.

Yosko and Foster were being fracced at the end of March and are presumably within the extra 5 brought into production in April.

There is a further statement that the Company expects there to be 35 wells in production by the end of May.

I suggest that the statement "At the end of the reporting period there were 18 wells on production, 11 ready for stimulation, 4 wells being drilled and 2 wells being stimulated" is actually a mix of reporting the position at the end of March and that at the end of April (28th) because the total is, indeed, the 35 referred to in the projection for the end of May.

My guess is that:

18 in production at 31 March
5 brought into production by 28 April
7 remaining wells drilled by 31 March awaiting fraccing at 28 April
1 well spudded in April awaiting fraccing at 28 April
4 wells spudded in April still drilling.

It also suggests confidence in sorting out Gilley which would seem to be in the total unless they are referring to a new well due to spud after 28 April and to be brought into production before the end of May, which would be unlikely.

 

[condog]

I think somewhere along the line you do have to allow for capex, whether its upfront or via depreciation, after all the wells do eat up all the cashflow for the first few years.
I also cant agree that payback is within 6 months. The cashflow of only $640,000 in the quarterly suggests to me that the first five wells still arent paid off, even after more than a year for the first.

Not so imo. If they are indeed producing an average of 787boepd as announced in the quarterly on a post royalty basis, do the maths, thats a less then 6 month payback per well on average.

If they are infact being repaid on an average faster then 6 months then youd be adding a CAPEX expense of 22% (22% is an average NRI htat i use, its not exact for each well, but works out ok) of $6.8M and then youd add 22% $6.8M to the Earnings. They effectively cancel each other out. Hence why i havent included it. If however well repayments where 3 months or 9 months, on average, i agree youd have to include the CAPEX.

I think when working out boe pricing, a more conservative figure than $95 might be appropriate, as at a 6 to 1 figure you're only getting about $40 for the gas portion.

Possibly true i had been working on 90 most the day and changed it to 95 to be in line with Euroz, who are quoting 95 as the figure achieved. Point taken on the 6:1 issue.

I'd agree with your 500boepd for the first year, however after this there will be the proportion of older wells producing substantially less, and this proportion will be increasing every year.

Totally agree this figure is currently 787 so using 500 is very conservative for now given there will be around 39 wells by june 30th, so essentially around 41 wells in H2 2011. 600 is likely to be more acurate for this year, however, unless new wells coming on line have and sustain significantly higher flows this average figure will decline each and evry year unless a huge amount of new wells are drilled in any year. Essentialy likely to decline each year.

From the rrc figures after nine months the average production for the first five wells is 257 boe per day (worked out on a 12/1 basis), so I would think the average for the second year from the older wells, would be struggling to be over 200 boepd even with improved techniques.

The quarterly states 787 as the average, thats the best information we have, so even though those older wells have declined, as they where gushing full bore, it appears, by the average of 787 they have learned and applied a lot. No point factoring in 257, when its already been done by the AUT in averaging 787.

These figures are all pre royalties. I agree that techniques are improving, however at the moment the quantum of longterm increases in production from these are purely speculative.

You have to remember, basically two years ago they where having huge problems doing multistage fraccing, with hopeless economics and almost as many technical failures as successes. To think that they have reached optimal flows and techniques already, is in my mind unthinkable. Having seen the improvements they have made already its astounding and yet they still havent even tried longer fracs with 30 plus sections, they havent tried the pulsating frac technique thats yielded others 25% increases in flows, they havent installed production tubing in many wells. Theres a hell of a lot of room left for improvement imo. And the information sharing arrangment will ensure these technical improvments are maximised.

 

[rcm617]

I think you will find the 787 boepd is the total for net production of all of AUT's wells over last quarter.
Another way of looking at it might be the net production quoted for AUT on 28th of April of 1660 boepd.
With 18 wells producing, at an average of 22% to AUT, ie 3.96 wells, average production would be 419 boepd per well. That would include a fair percentage of the newer wells.

 

[condog]

I think you will find the 787 boepd is the total for net production of all of AUT's wells over last quarter.
Another way of looking at it might be the net production quoted for AUT on 28th of April of 1660 boepd.
With 18 wells producing, at an average of 22% to AUT, ie 3.96 wells, average production would be 419 boepd per well. That would include a fair percentage of the newer wells.

Heres the exact words in the report

The Aurora cumulative share of production from post farmout wells during the quarter was 148 mmscf and 46,174 bbls after royalties at an average of 787 boepd.

It should be noted that there were 11 wells awaiting or being fracced at the end of March. As outlined above the additional fraccing capacity that was contracted from the beginning of Q2 will remove this inventory of wells awaiting stimulation. At the time of writing this report Aurora’s net production (after Royalty and cost recovery) had increased to 1,660 boepd.

Earlier in the report it states:

Aurora’s net production and sales income have started to increase rapidly as a result of its busy 2011 drilling schedule. Average production for the quarter increased to 787
boepd and sales increased to approximately US$5 million.

and

Aurora’s net production on 28 April had increased to approximately 1,660 boepd after
royalties.

and

At the end of the reporting period there were 18 wells on production, 11 ready for stimulation, 4 wells being drilled and 2 wells being stimulated.
There are currently a further 5 wells that have been fracced and are on production before
the end of April 2011.

I make that as 18 + 5 = 23 But as for the NRI the bulk of these are on sugarloaf and where pre Dec2010 at 10% NRI. So even though i believe average NRI will be 22% at end of 2011, at present we are probalby more like 12 or 13%. If we go with 12% then 1660/(23*12%)= 601 boepd per well after royalties. 787-601=186 186/787=23.6% Royalties. This is feasable. Maybe not dead accurate but we are definitely in the bal park.



The annualised net rev is a 350 days x that point in time. Not calulated annually.

 

[trader8888]

program just about to start on SBS called "gasland" about drilling for oil and gas in the US. Apperently SEA is on it

 

[Silhouetteau]

Hey All,

Just came across this news release from Lucas Energy who are drilling into the Austin Chalk. Just something to keep an eye on during the year. They're drilling in Gonzales.

"Lucas Energy announced today that it has entered into a joint venture agreement with Seidler Oil & Gas, LP. Lucas will be the operator under the joint venture relationship, and expects to drill approximately eight (8) new Austin Chalk wells, or new laterals in existing wells, during the 2011 calendar year"

http://www.globenewswire.com/newsroom/news.html?ref=rss&d=219934

 

[prgudula]

Investor Presentation out

http://www.auroraoag.com.au/irm/Company/ShowPage.aspx?CPID=1552&EID=93965843

 

[condog]

My Valuations

I believe these are optimistic and a PE of 10 to 15 is achievable. Figures do not include CAPEX. So they will be on the low side of these imo. As time goes on i presume the ratio of CAPEX to Revenue will decline, meaning imo the later valuations may be more accurate then the 2011 valuations.
Roger Montgomery's method - the most conservative valuation in the world. Based on comsec figures which i believe are incorrect.



Trader888 - yeh i watched it , its a bit biased from that tree hugging hippy. But it does raise a ver legitimate question. What is AUT/Hilcorp/TXN and the others doing to mitigate this risk of contamination of water, and or any side effects of chemicals on animals, people and flora.

Sillouhoute - Yes will be good to see whoat thier numbers are. Our well "weston " in the chalks was one of the early ones. And you could say comparable to other early wells its been a good producer, especially givin its relatively short horizontal section.. It will be interesting to see when we put our next Chalks well in, what the flows and declines will be. Id suggest that will be mid 2012, when lease obligations are met.

Pramond, nice to see they are still on the presentation trail. At 2.64 they may verywell attract the new heard of buyers needed.

 

[adobee]

program just about to start on SBS called "gasland" about drilling for oil and gas in the US. Apperently SEA is on it

been wanting to watch it for a while and got to last night.. very interesting.. biggest fact is that Chaney is the biggest crook of them all..

 

[condog]

nyone elese getting the feeling that this cold market is the result of fear from what the communist Labour budget will deliver. And that in 10 days time we will see a bounce post budget. Thats the feeling im getting.

The market hates uncertainty, and this govt has proven itself to be untrustworthy and poor judgment with even poorer strategic delivery. Im thinking the market doesnt trust the govt, and in around 9 to 10 days the fear will dicipate.

 

[prawn_86]

Peronally i think the flat market is due to the crazy highs of the AUD. A hell of a lot of ASX stocks have earnings in USD, so each movement up means lower bottom lines, depending on how much they have hedged.

 

[nioka]

nyone elese getting the feeling that this cold market is the result of fear from what the communist Labour budget will deliver. And that in 10 days time we will see a bounce post budget. Thats the feeling im getting.

The market hates uncertainty, and this govt has proven itself to be untrustworthy and poor judgment with even poorer strategic delivery. Im thinking the market doesnt trust the govt, and in around 9 to 10 days the fear will dicipate.

AUT operates in the USA so the political climate in Australia can't have much to do with the SP of AUT. The strong AUD and the weak USD plus the availability of OIL will be the governing factors regardless of which party is in power in Australia. Can't blame Julia for everything.

 

[condog]

AUT operates in the USA so the political climate in Australia can't have much to do with the SP of AUT. The strong AUD and the weak USD plus the availability of OIL will be the governing factors regardless of which party is in power in Australia. Can't blame Julia for everything.

All the small oilers are getting hammered, imo , the mood in australia whilst it should be irrelevant to AUT, overrides everyones sentiment and they all behave like lemmings as they over-react to a bit of uncertainty. This govt has made its self the most uncertain govt Aust has had in this generation, hell even Bob Hawke was calm and predictable comparred to this crazy bunch.

On another more positve note RCM617

Right on cue as I was typing last night they havent yet any where near maximised technological improvements that will lead to better flows and lower declines. Then bang oh, this mornings presentation says they will be trying the "HiWay" pulsating frac technique that yeilded Petrohawk 25% increased flows and lower declines.

I think they did that to try and make me look like i know what im talking about. lol.

 

[BrightGreenGlow]

Yes I read that too, realistically when will we see production figures on the hiway frac tech? PS: AUT's SP is floated up and down today... really weird..

 

[condog]

Not sure when we will see it, but it will be worth looking for.

Little old AUT, almost a 20c swing today. Seems the shorties had it shorted thismorning and now someones seen the value and fighting back. I was hoping for it to go a little lower and was going to grab a few, but was on the phone and missed the lows.

 

[condog]

I suggest anyone worrying about the sell offs lately. Simply grab a cuppa or a beer and spend half an hour browsing through todays presentation to see what our little microcapo oiler has become, and more importantly what its about to become. Certainly makes for good reading.

Another absolute cracker from todays presentation. I thought we wouldnt see this till mid 2012. But it looks like its an imminent priority. This has the potential to massively increase reserves.


Current data is inssuficient to tell what spacing may work. The Barnett shale is currently testing 20 acre spacing.

Updated cash flow projections.


Plus they are trialling the Highway Fraccing method which delivered 25% higher flows elsewhere in the EFS.