a bit of light reading to ease the boredom, worth a read they are very bullish on AUT & i like the bit about $2/sh.
this report is a few weeks old so an updated should be due shortly.
Aurora Oil & Gas Ltd (AUT $0.86) Buy
Price Target: $1.18
Reason For Update: 30-day Production Data Morgan-1H & Easely-1H
What We Know:
The Sugarloaf AMI JV (AUT 10%) has released 30-day production results from their 2 most recent wells; Easely-1H and Morgan-1H.
Morgan-1H averaged 19.1mmscfe/day (vs. IP 31mmscfe/day), producing 38.5kkbls of condensate and 109mmscf of gas.
Easely-1H averaged 10.1mmscfe/day (vs. IP 17.9mmscfe/day), producing 12.2kkbls of condensate and 126mmscf of gas.
IP data from Rancho Grande-1H is expected shortly.
Turnbull-1H the first of the Longhorn AMI (AUT 25%) and we expect IP results within the next 3 weeks.
Turnbull-2H and 3H are cased and await fracture stimulation.
What We Think:
The 30-day results are excellent and continue to underscore the quality of the Sugarkane Field.
Furthermore, the Morgan well in particular, demonstrates both the proof of concept and optimization of well design are both paying dividends in terms of increased condensate yield and lower initial rates of decline.
The JV is of the view that condensate yield and (potentially) pressure regime increase further north in the Sugarloaf AMI (25%) and into the Longhorn AMI (AUT 25%): Morgan is the most northern to date in the Sugarloaf AMI.
Importantly, the well completion design (in terms of no. of frac stages, horizontal length and percentage of proppant) is being refined with each well and to date, the production data has shown benefit accordingly.
Using spot prices, the Morgan well produced gross revenues in the order of US$3m, whilst Easely grossed US$1.5m.
Noting well costs of between US$6.3-8m, payback forecasts of circa 6months appears achievable given the results to date.
This has tremendously positive implications in terms of time to free-cash-flow and thus generation of sustaining capital for field development.
Should the news from the Longhorn wells serve to further highlight the favourable characteristics of the trend, AUTs higher equity position in Longhorn improves leverage to the Sugarkane Field and thus attractiveness of the AUT investment proposition.
A maiden reserve and revised resource statement is expected in July we believe that this will serve to at the very least validate our current price target.
Our $1.18/sh price target reflects the valuation metrics provided for by the recent bid (and target statement) for ADI.
However, we believe that similar estimations of value may be applied to AUTs participating interests in the Ipanema and Longhorn AMIs with on-going drilling success.
This would serve to roughly double our valuation to circa $2/sh.
Further upside can be seen with continued and heightening corporate activity in the play most recently witnessed with Shells 250K acre foray into the liquids-prone part of the Eagle Ford play.
Investment Case:
These latest production results continue to firm the credentials of AUTs acreage within the Eagle Ford play. A distinct trend of improving yield, higher pressure and lower rates of decline is emerging as the drilling focus shifts further north towards the Longhorn AMI. Proof-of-concept can be further enhanced via forthcoming results from Rancho Grande-1H. These will be closely followed by IPs from the suite of Turnbull wells: positive results from the Longhorn AMI are a clear catalyst for the share price. In addition, with the revised resource and (potentially) maiden reserve in the Sep Q, we believe that AUT has all the elements required for a re-rating. We maintain our Buy recommendation with a revised price target of $1.18/sh.