AUT - Aurora Oil and Gas

"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. "

skc - agree 100%. At the present, AUT is an incorporated project and project analysis appears to be appropriate. That implies NPV valuation.

However, with multiple increases in NPV possible using closer spacings, achieving higher EURs, counting the Austin chalk reservoir (which is producing through Weston), infill purchases to reduce the 'boundaries discount' of 10-15%, the added value from NLG stripping and the reduced capital cost of drilling likely, that should prove to be a very profitable basis for valuation of the company. And it could add value in advance of increased earnings.

When the company starts generating cash significantly in excess of that needed for investment in its current project, it could then look at other potential projects to maintain growth. But growth is assured over the next few years from just this project and they could have other reserves on the acreage that they have yet to explore.

Latest from Euroz.. $4.10 Valuation..



What We Think:

As a result of the commissioning of the new wet-gas pipeline in the field at the start of April, Netherland and Sewell will recognise an additional 14mmbbls of LPGs in AUT's reserves.

Allowing for associated compression to gas volumes, we estimate AUT's current total reserve position to be circa 90mmbboe (comprising 53mmbbls oil, 14mmbbls LPGs and 23mmboe gas).

This will be reflected in the subsequent reserves statement in the Mar Q, 2012 (ie as at Dec 31 2011).

Production data from AUT's circa 25 wells now flowing includes at least 15 wells with more than 3 months to beyond 12mnths of production data.

Out-performance of AUT's average well to Netherland & Sewell's type-curve is currently circa +15%.

We would expect Netherland and Sewell to recognise this to a reasonable degree (if not in its entirety) cum the next statement.

This would push 2P reserves towards 100 mmboe on this basis.

Furthermore, some 10-15% of AUT's acreage is not currently assigned any reserves by N&S (as can't fit an 80 acre graticule). This will be rationalised over the next couple of years by lease swaps and unitisation.

We believe upside to reserves would be linear ie. 15% inc. on this basis.

We see that the potential quantum of step-wise changes to reserves to be +2x our estimates of reserves cum the next statement (circa 100 mmboe).

This can start to be realised with the JV experimenting with downsizing to well spacing to 60acres (currently full field development assumed at 80acres by N&S) from this Q.

Effective drainage will also involve shallower wells to target the top of the Eagle Ford sequence. This can improve reservoir recovery factors from 5-10% currently to over 20% through increased "harvestibility".

Additionally, by beginning to test well spacing, the Operator will be well placed to understand full field development requirements in terms of optimisation of well and infrastructure design, logistics and services requirements and development sequencing/scheduling well ahead of full field development commencing in earnest from mid-CY'12.

Our current A$3.64/sh valuation will require reassessment in light of the increased reserves potential well performance.

Our price target will remain ahead of valuation in light of the low geological and commercial risks associated with AUT's onshore Texan oil assets.

Investment Case:

AUT remains a stand-out emerging oil producer, offering enviable low risk growth to production and earnings over the next 7+ yrs. AUT remains unique in that it offers pure exposure to arguably (and demonstrably) the best part of the Eagle Ford shale oil trend.

Significant short and medium term upside can be realised for AUT's reserves via continued outperformance of wells and ultimate well spacing: AUT has capacity to boast at least 90 mmboe 2P by year end and more than double these reserves with increased drilling density.

We retain our Buy recommendation and $4.10/sh price target. We flag upside risk to our valuation and price targets upon considering the considerable change to the scope of the project on account of the tangible reserve growth potential and improving well economics.

Latest spreadsheet in light of Euroz report. Note number of shares has changed. Flows a lot more conservative. Increased NRI in 2012, due to increasing NRI of sugarkane post Dec 2010, and majority of 2011 wells not in sugarkane.



Do your own research and seek expert advice, specific to your needs. Do not act on this, it is for discussion purposes only, may contain errors. Its a price target for Dec 31st 2011 and Dec 31st 2012

In my opinion a PE of 10 is too conservative. Im working on 15 to 20 PE.

Hiway frac data from petrohawk - agent dug it up on HC. Thats a substantial result, 32% at 90 days.

To me, the trialling and ultimate success of Highway frac will be as good as an acreage aquisition in any sweetspot but without the need for any CR or associated dilution issues.
This just adds so much value to a company. Aint technology a wonderful thing.

Assasin said:

To me, the trialling and ultimate success of Highway frac will be as good as an acreage aquisition in any sweetspot but without the need for any CR or associated dilution issues.
This just adds so much value to a company. Aint technology a wonderful thing.

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Go to say i totally agree. Whatsw important to recognise is its not like drilling 32% more wells. Its like having 32% more wells drilled and fracced virtually for free. Got to love that.

Petrohawk have basically done enough wells to know that in our highly pressurised zone there will be susbstantial benefits. The 43% increase in pressure on the AUT acerage is insane. Imagine Morgan flowing at 32% more and 43% more pressure.

Wonder if any of our 10 May fracs will be Highway, i certainly hope so, but it might be a bit soon to get it all organised.

On the Petrohawk website they have an entire 8 page presentation devoted to "Hiway Fraccing"

http://phx.corporate-ir.net/Externa...9NDE0Nzg4fENoaWxkSUQ9NDI2NTA4fFR5cGU9MQ==&t=1


It appears to me the NGL's have the same declines as non-HiWay fracs, but have higher flows at IP, 30 day, 60 day and 90 days. Whether this will just improve NPV's or EUR's will take a long time to be known imo.

The dry gas imo has both better flows and better declines. Although the data is limited and volatile.

Makes for interesting reading.

This is what Petrohawk said in the release on 22 Feb 2011 - 4th quarter results etc

=====================================================
Company Employs Breakthrough Schlumberger Frac Technology Successfully in the Eagle Ford Shale

Petrohawk implemented Schlumberger's MP7 (HiWAY) flow-channel fracturing technique since October 2010 on a select number of wells as a trial to determine the impact of this novel methodology on horizontal multistage production in the Eagle Ford Shale. The initial tests were located in various areas of Hawkville Field. The HiWAY fracturing technique combines fit-for-purpose fracture modeling, fracturing fluids and high-frequency proppant pulsations. The HiWAY method effectively creates flow channels within the fracture network and increases the overall stimulated reservoir volume and permeability.

Initial production results from this limited set of wells reflect average production increases of approximately 37% in the areas with gas and natural gas liquids and an average of approximately 32% in the high condensate yield areas. Additionally, EUR increases from the limited trial, based on internal estimates, ranged from 25% to 90% higher as compared to offsetting wells completed with conventional fracturing techniques. Petrohawk has converted 100% of frac services provided by Schlumberger in the Eagle Ford to HiWAY. Currently, Petrohawk is utilizing all available capacity of this technology.

Any changes to expectations for the Company's Eagle Ford Shale productivity and EURs as a result of the use of HiWAY will be made after additional data is gathered.
======================================================

So, they are saying higher levels of production and higher EURs. NPV10 will benefit from the increased level of early production and also from the increased recovery. NPV10 will be reduced for the increased cost but, from what I have seen on the Schlumberger site, the increased cost might be their increased profit mark up because they say that they use the same machinery etc.

This might be the first of the innovative developments. It'll be interesting to see what Hilcorp do.

Buyers beginning to stack up again as sellers drying up a bit. Looking good, especially given 10 well completions to be announced in next 20 days, then 6-9 wells per month for remainder of the year.

condog said:

Buyers beginning to stack up again as sellers drying up a bit. Looking good, especially given 10 well completions to be announced in next 20 days, then 6-9 wells per month for remainder of the year.

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Good isnt it Condog.. Feeling confident.. What are your current thoughts on HOG and TXN, Is there enough news flow comming from these companies to push the share price up? Are you buying HOG?

Thanks.

Magic Man said:

Good isnt it Condog.. Feeling confident.. What are your current thoughts on HOG and TXN, Is there enough news flow comming from these companies to push the share price up? Are you buying HOG?

Thanks.

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TXN has a few well results soon, which imo will either put a rocket under it or smash it. (I hold). HOG, is very cheap imo, given its free cash flow. Its Chets well is around 5 months till results are known and if its good, HOG should really pick up. (I Hold). Both very early in development, thus huge risk compared to AUT, however, more upside potential.

Announcment out , plenty happening.

Across Aurora‟s gross acreage position of 74,800 acres there are presently 4 drilling rigs and 2 full time fracture stimulation crews operating, with a temporary 3rd stimulation crew carrying out ”žHiWay‟ stimulations on 4 wells. The operator is ahead of target to complete the planned 60 well drilling program in 2011.

Forster 30 day average 758boepd

Multiple wells been placed on production with no flow data out yet. Multiple drilled and waiting on fracs.

All looks to be progressing at a frantic pace. Making $2.78 seem obscenely cheap imo.

Dagnab it! The resistance at the mid-2.90's level is rock strong. Hopefully we have better luck next time

looks like someone miscounted on the barrels oil price back up again! Looking for an upward adjustment on AUT but oh dear what are the SEA woes?

New update - Holman only got 4% decline from 30 - 60 days with 850 flow. Amazing result.

condog said:

New update - Holman only got 4% decline from 30 - 60 days with 850 flow. Amazing result.

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They're managing production from the recent wells by choking down.

Beuhring flows might be less than the 'norm' but look at the condensate ratio: 797 bbls/1mmcfg. That compares with Foster at 243 (Ipanama, so expected) and Hollman at 270.

From AUT quarterly: Turnbull 4 was 440, Morgan 294 and Kowalik 324 just for comparison. Beuhring is in a different league.

trader8888 said:

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.

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I wouldnt rely on those figures too much, AUT's revenue over the last six quarterlies is less than $1 million, so cant see where they get the PE of 25 from.
Certainly AWE have had a lot of dud wells lately, but BPT's strike rate is pretty consistant in the Cooper Basin, and of course the wells are a lot cheaper.
Both are in the early stages of developing their shale assets, and have the cashflow to do so without having to rely on capital raisings, as well as having enough acreage to farm out to majors.
Probably not directly comparable, just raised them to show that some of the future multiples used may be a bit optimistic.

AUDIO BROADCAST
Aurora Oil & Gas Limited (“Aurora”) provides the opportunity to listen to an audio broadcast
with Mr. Jonathan Stewart, Executive Chairman and CEO of Aurora.

Mr Stewart provides an update on Aurora’s expanded acreage in the Eagle Ford shale,
drilling plans for 2011, discusses Aurora’s listing on the TSX and movements in its share
register.
The broadcast can be found on Aurora’s website at:
http://www.auroraoag.com.au/ManagementInterviews

Nothing really new but good to have confirmation from the Executive Chairman that things are on track...and we will be self funding by mid 2012, focus is only the over pressured oil rich area which is good to hear. As John says in this broadcast the elephant in the room is the well spacing...he doesn't mention when they will be doing this though, I guess after they have completed the 60 wells they need to drill for this year.

I would like to quote from trader888's post on HC. I agree and remember Jon saying this type of stuff. The pipeline sounds very good and he seemed very confident when talking about the future.

These are some key notes i took from the interview with jon.

- 27 days from rig up to rig down, and they see that number coming down.

- Ahead of sceduale.

- Wet gas line commisioned in April, now recieving revenues from NGL's

- %91 of revenue is from liquids

- Managment estimates a further 10million barrels of reserves due to NGL's (NET of gas shrinkage)

- Wells tracking ahead of NSAI assumtions

- Managment estimate current recovery of oil in place is %8, this could increase by a multiple by reduced well spacing.

- It was good to see that Jon was adiment about staying in the HIGHLY PRESSURISED SWEET SPOT of the EFS. No oil fever here.

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rcm617 said:

I wouldnt rely on those figures too much, AUT's revenue over the last six quarterlies is less than $1 million, so cant see where they get the PE of 25 from.
Certainly AWE have had a lot of dud wells lately, but BPT's strike rate is pretty consistant in the Cooper Basin, and of course the wells are a lot cheaper.
Both are in the early stages of developing their shale assets, and have the cashflow to do so without having to rely on capital raisings, as well as having enough acreage to farm out to majors.
Probably not directly comparable, just raised them to show that some of the future multiples used may be a bit optimistic.

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Yeah fair enough, i think they calulate on a estimated 1 year foward EPS though.