AUT - Aurora Oil and Gas

A very interesting snippet from the latest Hartleys report on AUT was their expectation that an upcoming reserves report by Netherland Sewell and Associates (NSAI) might improve the recovery estimate for AUT's acreage from 7% (per their Sept 09 report) up to as much as 22%. i.e a tripling of the potential gas/condensate recoveries.

The Sept 09 initial "mid-case" resource estimate by NSAI was 391 bcf of gas and 72 million brls of condensate attributable to AUT from their Austin Chalks and Eagle Ford pre-farmout net acreage. Scaling this up from a 7% recovery to 22% recovery and then halving for post-farmout working interest, we would have a net 614 bcf of gas and 113m brls of concentrate for AUT. (I have ignored the recent increase in AUT's acreage ).

Anyone got a reasonable suggestion as to an "in the ground" fair value to put on revised volumes such as these? Only a portion would be P2 with the majority probably being P3 reserves???

Toying with the figures myself, I used a value of US $0.40 per mcf of gas and US$7 per brl of concentrate which gave an in the ground value of (691m X 0.40) + (113m x 7) = US$1067.4 million for AUT.

Converting the FX ( 1.15 A$ = 1 US$) = A$1227.5m. Dividing by ~279 million shares = A$4-40 per share.

An "interesting" potential value per share, but I doubt that my numbers are very soundly based, as I have assumed the full tripling of recoveries and also used an average for P2 and P3 reserves without knowing the respective split between them or individual values to place on them. Hopefully, however, someone can improve on my rough calculations?

Tnaduki i posted mine before seeing yours so have editied it at the end of this post.

From the Hartleys update today

EV / 2C Resouce ($/mmboe) $2.71

When ADI was bought it was valued at approx $3.26 per mmboe

At $3.60 AUT would be 68.7mmboe * 3.26 = $224M mcap

If Hartleys are in the ballpark and the reserves are upgraded 300%, thats $224*300%= 672M mcap / 248M shares = $2.71

If they are wrong an its upgraded by 100% to 138mmboe thats roughly $448M = approx $1.81 sp

Just another way and another method in my opinion confirming the value on offer.

Tanduki - the $4-40 imo is probably too optimistic in the very short term, but does highlight the potential upside.

The best thing ive found to relate it to is the ADI sale.

However we could dig for Pioneers figures in the reliance deal and use those as well to get an average.

Tonoduki

AWE’s offer for Adelphi Energy implies a value of ~$30.7K per acre ofEagle Ford Shale Formation (EFS). Applying this dollar value per equityacre of EFS to Texon’s acreage of Edwards and EFS in McMullen CountyTexas, produces a look-through value of ~$138 million or ~$0.90 pershare (diluted) for Texon’s EFS project only. Strachan Corporate esti-mates that the value for long term development of Texon’s EFS project is3 times this bid related metric

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From: http://webcache.googleusercontent.c...607.pdf+adi+awe+/boe&cd=1&hl=en&ct=clnk&gl=au

at $30.7 for AUT = 9690*30700= $297M mcap = approx $1.17 now with to premium built in. But also take into account We have more developed wells then ADI has and had at time of take over. Which probably just removes TO premium. Giving imo $1.16 value now using this method and a TO value of significantly above that. Note this does not imply any TO, its just using another methodology to apply a value.

From the Price Waterhouse Coopers report on the ADI takeover on how to value a company.

There are a number of different methodologies generally used for valuing oil and
gas assets, including the following:
● income based approach, including discounted cash flow (“DCF”) and expected
monetary value analysis;
● market based approach, such as comparable transaction data and farm-in
transaction data; and
● cost based approach, including amounts spent to date.
86 The DCF methodology is generally considered the most appropriate valuation
method for valuing oil and gas projects as it explicitly considers the timing and
amount of individual cash flows for oil and gas projects which are finite in life and
which have significant initial capital costs and variable production profiles.

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ADI valuation from that report below in case you want to work it out.

condog

Thanks for the info.

I think that the AWE offer for ADI quoted by Strachan at $30.7k per acre was calculated from the final offer price of 42 cps rather than the "fair value" of 61 cps per ADI's target's statement. Also, the basis of even that supposed "fair value" calculation was IMHO flawed due to unmerited aggresive discounting, assumptions re future dry wells and the pace of the development by Hilcorp of the Sugarloaf field. And finally (!), the condensate:gas ratio on AUT's Longhorn acreage looks (so far) to be much better than that of the Sugarloaf AMI acreage which will add a higher value.

Anyway, whichever valuation is used, all roads seem currently to point to a prosperous future with AUT shares (providing the external factors don't interfere too much).

Interesting to note that Strachan also put a value to Texon of A$55million on 3 million brls of P2 reserves i.e. $18.33 per brl. Something to look forward to when we grow our P2 figures lol

i still like this old one nice & simple
$16.5m US x 130 net wells = a lot more than 83.5c per share ,this NPV was based on the first 2 wells which were only 2000' in length so the NPV will now be a lot higher
http://i922.photobucket.com/albums/ad68/mir911/ScannedDoc_0001-1.jpg?t=1279628411

just trying to work out how to post images ,no idea but here we go.

i still like this old one nice & simple
US$16.5m NPV per well x 130 net wells = a lot more than 83.5c per share ,this NPV was based on the first 2 wells which were only 2000' to 3000' in length so the NPV will now be a lot higher.

mir said:

just trying to work out how to post images ,no idea but here we go.

i still like this old one nice & simple
US$16.5m NPV per well x 130 net wells = a lot more than 83.5c per share ,this NPV was based on the first 2 wells which were only 2000' to 3000' in length so the NPV will now be a lot higher.

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Got to say in its rawest form its a good guide of future worth

130 * 16.5 M = over $2B

Divided by shares outstanding and oppies = over $8 per share

As i said and you said its raw as hell, but its a guide of what they have in the ground and will attempt to recover. My gut feeling on this method is NVP's will climb above 16.5M due to decreasing drill and frac times, and better economics, but by the same token that $8 is unlocked overnight.

Forward cash modelling also shows this figure is attainable with certain parameters.

I dont think you and i will get to see it as my guess is by then one of the big 4 will own it.

tonudiki said:

condog

Thanks for the info.

I think that the AWE offer for ADI quoted by Strachan at $30.7k per acre was calculated from the final offer price of 42 cps rather than the "fair value" of 61 cps per ADI's target's statement. Also, the basis of even that supposed "fair value" calculation was IMHO flawed due to unmerited aggresive discounting, assumptions re future dry wells and the pace of the development by Hilcorp of the Sugarloaf field. And finally (!), the condensate:gas ratio on AUT's Longhorn acreage looks (so far) to be much better than that of the Sugarloaf AMI acreage which will add a higher value.

Anyway, whichever valuation is used, all roads seem currently to point to a prosperous future with AUT shares (providing the external factors don't interfere too much).

Interesting to note that Strachan also put a value to Texon of A$55million on 3 million brls of P2 reserves i.e. $18.33 per brl. Something to look forward to when we grow our P2 figures lol

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Yes agree very much. I maded this point a few months ago. That no matter what method is used AUT looked extremely cheap. Right now its obviously not as cheap as it was, but it still looks good value imho and its growth prospects are amazing.

Extrapolation from the Reliance Pioneer mmboe figures for a 45% interest from
http://www.tradingmarkets.com/news/...sources-idr-at-bb-outlook-stable-1022551.html



Note this is just another opinion and valuation method put forward for opinion or discussion. No implied value or guarauntee of future price is made. Always DYOR and seek expert advice. May contain errors, miscalculations or misjudgmnets.

imo watch AUT closely for the next few weeks for the reserves upgrade as a rough guide to value.

Note: correction of my above in post 748 it says is unlocked over night - it should say is not unlocked overnight.

Interesting Read

extract of interest FROM
http://www.ibtimes.com/articles/3592...illing-gom.htm

according to Stansberry & Associates Investment Research Founder Porter Stansberry. Porter, who built his reputation on finding safe-value investments poised to give his followers years of exceptional returns, also has a reputation as an independent thinker with a penchant for "out-of-consensus" viewpoints. He shares some of his contrarian opinions in this exclusive interview with The Energy Report.

TER: Meanwhile, in the wake of this spill, many people are talking more about alternative ways of getting oil. For instance, I've seen oil shale discussions on morning TV. How realistic is it to expect more production out of tar sands, etc.?

PS: Well, the Eagle Ford shale has a lot of condensate in it, which isn't necessarily oil, but actually in some cases is more valuable than oil because it's easier to crack it into gasoline. There's already a lot of natural gas liquid production today in various shales across the country, and I expect big increases in that.

I have an out-of-consensus view here, but my sources-all practicing oilmen in Texas who own land in the Eagle Ford and have drilled wells there themselves-tell me that they believe the Eagle Ford will be the largest single oilfield in the history of the United States. And they said oil, not natural gas. They're talking about natural gas liquids, which are just as good as oil-or as I indicated, even better in a lot of cases.

TER: That sounds like good news.

PS: Depending on your outlook, I'm afraid it means that natural gas prices will stay depressed for a very long time, but it's definitely going to be a big game-changer for domestic, onshore production. Just last month, Reliance Industries Ltd. (BSE:RIL), the biggest conglomerate in India, paid around $1.3 billion for 40% of Pioneer Natural Resources Co.'s (NYSEXD) Eagle Ford property. China hasn't bought anything in the Eagle Ford, but they will. I personally think they're likely to buy Petrohawk Energy Corporation (NYSE:HK). I have no evidence of that, just an instinct. Petrohawk has some of the best properties, but China is probably the only one willing to pay the very high price they're demanding. So that's the next deal I expect. You're definitely going to see a lot more deals.

TER: What stands out about Petrohawk?

PS: I think its first year's drilling campaign was in 2009, and they drilled something like 28 different holes without a single dry one. When you have no dry holes, the return on your capital from your drilling program is vastly higher. It's a whole new ballgame. It's just vastly more efficient and therefore the eventual profit margins from production will be even higher than they already are.

In my mind, horizontal drilling and the existence of liquids in these shales is the game-changer for the energy business, and I really don't think people appreciate how big a change it's going to be or how large the production from these fields is going to be.

..... about fraccing environmental concerns.....blah blah

PS.......about investing in infrastucture and equipment companies or exploration companies.........blah blah

PS. I think it makes more sense just to buy the companies with the best acreage in the field, and sooner or later you're going to make a lot of money. Even if it takes a long time to get all the holes drilled, the resource is there.

I don't think most investors appreciate that there aren't any dry holes in these fields because they use seismic technology to look before they drill. They know the exact depth of the shale and once they know they're in it, they just drill sideways.

Oil gains on forecasts inventories will decline July 21, 2010 - 7:02AM

Agent on June 30th you wanted evidence hurricanes lead to increase oil prices. Well today as predicted it helped oil tick up 90c. Oil price futures when i first mentioned this where just over $70, today they are approaching $78.

condog said:

Dont forget hurricanne season traditionally corresponds with higher oil and energy prices, which is a positive (note concern for victims).

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Agentm said:

i have no idea what you talking about here condog? can you present some facts on this that back up what you saying

re energy future prices up?? can you confirm that is correct please.. imho if you research oil futures which i think are the relevant ones to look at, you will find its been down for 5 days straight!!


your very exuberant on aut condog, and it has the potential, but make no mistake condog, you need to be a little more accurate on the statements you make. when people make statements like you have it sounds very exciting, so i had to research it and make sure it was correct.. i cant confirm most of the things your saying when i check it and examine it, can you confirm that what your stating is accurate for me please?

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From Todays sydney Morning Herald

.Crude oil rose to a three-week high as a tropical wave formed in the Caribbean, potentially threatening production in the Gulf of Mexico, and on predictions of a decline in inventories.

Oil climbed after the National Hurricane Center said that a weather system over Puerto Rico and the Dominican Republic has a 60 per cent chance of becoming a tropical cyclone. An Energy Department report tomorrow will probably show that US stockpiles of crude oil dropped last week, according to a Bloomberg News survey.

"If it weren't for the tropical wave, we wouldn't be higher," said Phil Flynn, vice president of research at PFGBest in Chicago.

Crude oil for August delivery rose 90 US cents, or 1.2 per cent, to $US77.44 a barrel on the New York Mercantile Exchange, the highest settlement since June 28. The August contract expired today. The September contract added 68 US cents, or 0.9 per cent, to end the session at $US77.58.

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Nuns diagram the other day - I added the two blue lines and white vertical line to show the flag formation.

A typical bull sign flag

A chartis bull flag

Typical breakout flag

Are we forming a 2nd consolidation bull flag now ready to break out on next weeks possible reserve upgrade ???

Im not speculating any TO is on offer , but with the levels of M&A in the Eagleford its something every investor needs to consider and keep tucked away in thier mind.

The last thing most newer holder want right now is a TO which can wipe out up to 45% of your gains with CGT payable if not discounted.

But one reasurring thing with all this M & A activity is the premiums built in.

When AWE launched its bid for ADI, ADI was at 23c

The eventual TO price was 42c

On that basis it was an 82% TO premium from the last price.

Extrapolate that to AUT right now and we are looking at offers north or 42/23*84c = approx $1.54

This is far too cheap . But on the back of next weeks upgrade we may well see a possible price surge. If we do in coming weeks that TO premium may push nrth of $2, which would be more comforting to most holders.

Based on the reliance deal with next weeks predicted upgrades, that figure based on an mmboe price may be up to $2.71 . See post 20th jul 7.47pm

However based on the ADI deal we also know some of these are predators and will leap when these companies are trading cheaply. ADI was valued by Price Waqterhouse Coopers at 61c but was eventually consumed at 42c.

Possible timelines - can you think of anything needs adding? / changing?

Last week of July- reserves upgrade, up to 300%?? suggested by Hartleys
- small chance of Kowalick drill finish, but most likely the following week
- possible T2 flow again
- possibility of T3 flow announcment
- SPUD may unit or patinio
- look on TRRC for next well applications

1st Week of August- reserves upgrade overdue
- Kowalick ready to frac
- T2 should be flowing again
- T3 IP's out
- Spud announced
- look on TRRC for next well applications

Last Week of August- T1 T2 and T3 30 day flows
- Ready to frac may unit or pation and the other to spud
- new wells should be up on TRRC
- Be looking for Hartleys and Euroz broker updates on the back of flows updates and reserves upgrade.

August to September - repetition of drilling fraccing cycles

1st week of october
- News of cash revenues flowing post Hilcorp payback.

1st Week January
Approx 17-21 wells flowing to sales.
Hilcorp expecting 3rd rig on site and full time frac crew.

H2 2011
Impending need for modest capital, via debt facility, SPP or CR

End 2011
Approx 37 wells for 2011 flowing and 17-21 from 2010

The next quarterly will make for interesting reading.

Whether it provides the spark to get the shareprice moving again remains to be seen.

I'm a bit disappointed with the momentum at the moment and can't afford to have my capital languish

I need my cash working hard for me every day of the week.





Moved across to LNC for the time being...

But I'll be back!

Its actually just had 60 days of consolidation and is well below its correctly placed trendline, the bollenegers are tight and there is the potentially massive price catalyst of the reserves upgrade.

On the MACD it looks good and its slow and fast moving stochastics look good for a rise.

On another note

July 21, 2010 - The Wall Street Transcript has just published Oil and Gas Production and Distribution Report

http://www.twst.com/yagoo/weisss.html

Philip H. Weiss is a Senior Analyst covering the energy sector at Argus Research Co. Prior to Argus, he worked as a Senior Institutional Writer for T. Rowe Price, where he wrote commentary for several of the firm's investment strategies and white papers on investment-related topics. Mr. Weiss also worked as a Writer/Analyst/Co-Portfolio Manager for The Motley Fool's Cash King/Rule Maker Portfolio.

TWST: With high oil prices, the companies must be generating pretty good cash flow. Where is it going? Is it going into E And P?

Mr. Weiss: I think a lot of it is cap ex. The bulk of cap ex spending by the integrateds is certainly going into E And P activity. Cap ex on the refining side is down pretty dramatic because the downstream environment is so weak. Most companies are more or less limiting downstream cap ex to maintenance levels. On average, 75% to 80% of cap ex for integrateds is allocated to upstream activities. Another thing companies have done where they can is - the big push right now is towards more liquids production. It's the wet-gas plays, like the Eagle Ford and the Granite Wash, and places like that, where you are not just getting dry gas.

UPDATE 1-TPG invests $300 million in Copano Energy
Wed Jul 21, 2010 9:12pm GMT

* Copano issues $300 mln convertible preferred to TPG
* To be used to fund Eagle Ford Shale expansion

By Megan Davies and Matt Daily

NEW YORK, July 21 (Reuters) - Private equity firm TPG Capital [TPG.UL] is investing $300 million in natural gas company Copano Energy (CPNO.O: Quote), which it will use to fund shale gas production developments, Copano said on Wednesday.

.....

Eagle Ford, like other shale gas fields such as the Marcellus in Pennsylvania, New York and other states, and the Haynesville in Louisiana, have attracted billions of dollars in investments in recent months.

Might be out by a few days, but its looking good.

60 days of consolidation

Long term trendline on the bottoms is innacurate due to trend since April when Hilcorp took over and set a cracking pace of establinghing highly successful wells.

Certainly imo its sitting either below its newly established trendline or low in the trading band. Which is to be expected on the back of a CR and SPP.

Firmly entrenched new resistance established after extended trading just above 80c

MACD crossing

Stochastics low and ready to turn

bumping on the 20day average

Underpinned by value when compared to the ADI sale price, the Pioneer deal.

Reserves upgrade due

Continual news flow of new wells with extremely encouraging flows, and high liquid ratios

Might track side ways a few more days imo slipperz but that would be about the extent of it before we see these short sighted or short term sellers drying up fast.

Too much news coming and too much value being added for it not to head north imo.