AUT - Aurora Oil and Gas

[condog]

RCM, i see what your saying. Yes my error , i stand corrected.

This table holds the key though to projecting a more accurate average, then the Q1 of approx 364 per well.

You will note that many of the later wells already have equivelent or greater total production numbers then those earlier wells (Weston, Easely and Kennedy).

Take turnbull 3 for example which has more production already then Weston and Easely combined. Turnbull 4 has more total production then Kennedy.
Patinio already has more then Easily, and Sienkeiwicz or Franke already have almost as much as Easely. So i think we need to largely take Easley, Weston and Kennedy influence out of any average we come up with .

Im going out to lunch so have to go

 

[prgudula]

New announcement on Prospectus out

http://www.auroraoag.com.au/irm/Company/ShowPage.aspx?CPID=1555&EID=66331154

 

[trader8888]

I have worked out that average production is 445BOEPD per well.

They say end of April production was at 1,660 BOEPD (after royalties) on 23 wells, pre royalties = 2250 BOEPD at %25 royalty.

So

2250 / 23 = 98 BOEPD (Net to AUT)

(NRI) 22% of 445 = 98

Total field production is at 10,235 BOEPD. This is figure is hampered a little from the poor first few wells drilled a year ago and the lower NRI's of some of the wells.

 

[skc]

I have worked out that average production is 445BOEPD per well.

They say end of April production was at 1,660 BOEPD (after royalties) on 23 wells, pre royalties = 2250 BOEPD at %25 royalty.

So

2250 / 23 = 98 BOEPD (Net to AUT)

(NRI) 22% of 445 = 98

Total field production is at 10,235 BOEPD. This is figure is hampered a little from the poor first few wells drilled a year ago and the lower NRI's of some of the wells.

Couldn't help but stick my head in here... some really good analysis being done here.

Clearly average daily production is an important variable and it has a direct linear relationship to the value of AUT.

However, another very high impact variable is in fact the PE multiple. Can I ask how do you (or anyone) choose the PE value? Is it correct to use PE of 10 or 15 if the wells only produce economically for a defined period of time?

 

[trader8888]

Couldn't help but stick my head in here... some really good analysis being done here.

Clearly average daily production is an important variable and it has a direct linear relationship to the value of AUT.

However, another very high impact variable is in fact the PE multiple. Can I ask how do you (or anyone) choose the PE value? Is it correct to use PE of 10 or 15 if the wells only produce economically for a defined period of time?

The PE value is not chosen it is worked out, first you find the earnings per share or EPS then from this figure you work out what PE ratio your company is trading at. Say your company is currently trading at a PE of 10 you can then use higer PE's to work out how much growth can be made. The Energy sector average at the moment is a PE of 24.

I would'nt be giving AUT a discounted PE at the moment as the full field development is'nt planned till 2019 thus the field or production won't decline till after that year.

These are the equations if you are interested -

EPS- Net income – Dividends on stock / Average outstanding shares

PE Ratio - Market value per Share / Earnings per Share (EPS)

I found this site very educational -

http://www.investopedia.com/

 

[suhm]

I'm just wondering where you got that table from condog, I don't remember seeing it in a presentation, very useful information though.

 

[rcm617]

Now we're starting to get a bit closer to actual production averages per well.
I've worked out end of 2011 EBIT using predictions from AUT's presentation of 5000boe post royalties (5000*90*365) to equal $163.9m, so just a bit more than your fourth spreadsheet. If it was me I'd also put in depreciation of 10% for the wells, or about $12m in 2011. And I think $90 might be a bit generous for the present price of oil, but down the track the oil price will probably run past this.
Like I said, a lot of assumptions, but I would imagine AUT wouldn't be to far out with their predictions for year end in their latest presentation.
Suhm, that table was from the quarterly.

 

[skc]

The PE value is not chosen it is worked out, first you find the earnings per share or EPS then from this figure you work out what PE ratio your company is trading at. Say your company is currently trading at a PE of 10 you can then use higer PE's to work out how much growth can be made. The Energy sector average at the moment is a PE of 24.

I would'nt be giving AUT a discounted PE at the moment as the full field development is'nt planned till 2019 thus the field or production won't decline till after that year.

Thanks but you may have mis-interpreted where I was coming from. The PE in the valuation model shared by condog is an input variable - it is not worked out. The model tried to work out the EBIT at end of 2011 and 2012, then multiple that by the PE variable (where he used 10, 15, 20 and sector average of 23).

My question is which PE is the right number to use in this instance - as you can see it has as big an impact as oil production per day.

 

[trader8888]

Thanks but you may have mis-interpreted where I was coming from. The PE in the valuation model shared by condog is an input variable - it is not worked out. The model tried to work out the EBIT at end of 2011 and 2012, then multiple that by the PE variable (where he used 10, 15, 20 and sector average of 23).

My question is which PE is the right number to use in this instance - as you can see it has as big an impact as oil production per day.

Well IMO for a company like AUT with the potential for massive reserves and production growth ahead of it, the sector average would be the benchmark PE ratio to work of.

 

[condog]

OK heres my latest correction after taking into account what RCM identified as an error in my previous calculations. Note that if you take out Kennedy, Weston, Easely and T1 the average flow for overall production is up around 500. Its probably appropriate imo to take out the first 3 but not T1. Why? due to the future wells imo will be more accurately repreresented by the later wells in terms of flows and declines.

Make sure you do your own research and seek advice. Do not act on these numbers, they are for discussion purposes only and may contain errors.



Note this is a cashflow only projection. Valuations could be higher or lower, depending on reserves importance to individual investors.

 

[RaymondJ]

Your figures seem reasonable to me Condog I think most people can manipulate those figures with there own opinions on PE and flow rates. People can easily use different PE values to get an average if they want. Im thinking that $90 p/boe will probably be a bit cheap for 2012. The U.S Dept of Energy gives an average price for WTI next year as $113 U.S. not including spot prices.

Just 1 quest Are your figures in U.S. currency or Au currency? I think AUT sells at U.S. dollars but I could be wrong.

Tks

 

[condog]

All in USD at this stage, but whilever they are reinvesting profits into development, possibly best not to convert currencies.

 

[rcm617]

Might be interesting to compare two comparable sized Australian producers.
BPT has a MC of $996m, with $160m cash, and revenue of $513.3m for the last four quarterlies.
AWE has a MC of $775, with $75m cash, and revenue of $299m in the last four quarterlies.
Most of their revenue is from conventional oil and gas, with minor involvement in US shales, but both have early extensive shale acreage in Australia.
Although not exactly comparable, I would suggest that some of AUT's growth potential is already built into the price when you compare revenue from these established producers.

 

[basilio]

Might be interesting to compare two comparable sized Australian producers.
BPT has a MC of $996m, with $160m cash, and revenue of $513.3m for the last four quarterlies.
AWE has a MC of $775, with $75m cash, and revenue of $299m in the last four quarterlies.
Most of their revenue is from conventional oil and gas, with minor involvement in US shales, but both have early extensive shale acreage in Australia.
Although not exactly comparable, I would suggest that some of AUT's growth potential is already built into the price when you compare revenue from these established producers.

Pretty sobering information. These are all established energy producers and explorers. In that sense they don't have the "rush" of speculative energy that surrounds potential new players in the market. Perhaps the market doesn't value energy stocks as strongly as we would like to think when they simply become boring energy producers ?

 

[condog]

Dont forget though, the EFS shale is virtually a 100% success rate, is close to market in the 2nd biggest energy market in the world. Its in a low tax environment.

If we are talking revenue and AUT has 17.6 net wells at end of 2011, 17.6 wells x $90 x 400barrels x 365 days = Revenue of $231M on an annualised basis. By end of 2012 its more like 35 wells x $95 x 380 x 365 = revenue of $460M

End of 2013, 52 wells for $683Revenue. Neither BPT or AWE have programs in place for such growth.

And imo its this growing revenue, and the certainity of it, thats the reason for higher AUT valuations then cash flow alone.

 

[nioka]

Pretty sobering information. These are all established energy producers and explorers. In that sense they don't have the "rush" of speculative energy that surrounds potential new players in the market. Perhaps the market doesn't value energy stocks as strongly as we would like to think when they simply become boring energy producers ?

Interesting to look at the AWE chart over the years. A good example of an oiler. A good example of OIL FEVER. All oilers have the risk that eventually they will contract the disease. Going back years when the first Australian oil was discovered at Moonie I had a friend that had a few shares in them. They got to 50 pounds a share and he was worth a small fortune. He decided to wait until they got to 100 pounds, worked out that was an easy target. He retired poor and broke.

I'm not saying there is no more to come but my sentiment is long term sell. Maybe I'll sell too soon but that will be better than holding too long. Oil, even for a producer, is a spec stock, remains a spec stock and that makes some of the PE ratios quoted here as very optomistic.

 

[skc]

Oil, even for a producer, is a spec stock, remains a spec stock and that makes some of the PE ratios quoted here as very optomistic.

That's what I wanted to point out. When you multiply a cashflow by a PE of 10, you are assuming that cash flow will last FOREVER with a discount rate of 10%. If that cash flow lasts only 10 year, the 'equivalent' PE is only 6.1.

When valuing an oiler, make sure you don't apply a high PE to their peak cashflow/earnings. If you do that you are guaranteed a high valuation, but in fact you are paying for oil that hasn't even been found yet.

For AUT their cashflow/earning ramps up quite substantially over the next few years before tapering off (according to their presentation), so applying a PE (of any number) is somewhat incorrect due to that cashflow profile. Best to just do a NPV on the projected cash flow, and add in a conservative estimate of terminal value (the value of the company beyond the cash flow projection period), and pick a discount rate that will still give you appropriate risk adjusted return.

 

[Magic Man]

Good news... the volume is heading upwards

 

[trader8888]

Condog ive done the figures on the NET wells and it is closer to 15.8 for AUT, The average is bought down by the lower WI's in the first wells drilled. The average NRI for AUT this year is %20.

 

[trader8888]

Might be interesting to compare two comparable sized Australian producers.
BPT has a MC of $996m, with $160m cash, and revenue of $513.3m for the last four quarterlies.
AWE has a MC of $775, with $75m cash, and revenue of $299m in the last four quarterlies.
Most of their revenue is from conventional oil and gas, with minor involvement in US shales, but both have early extensive shale acreage in Australia.
Although not exactly comparable, I would suggest that some of AUT's growth potential is already built into the price when you compare revenue from these established producers.

I have'nt done the figures on BPT but my ETRADE account has them at a PE of 55 AND AWE a PE of 75. They have AUT at a PE of 25.

Their CAPEX must be massive which errodes their cashflow. I would think they have alot of wildcat wells that turn up nothing as well. IMO AUT still has alot of growth left in it.