AUT - Aurora Oil and Gas

AUT / EKA ratio for the last 365 trading days. It's been in a tight range around 4.0 for a while, currently 3.83.

Cheers Wrogun, and thanks for that.

While it shows 4:1 its not a viable ratio on value since Longhorn began development and was sured up with the 3 Turnbulls, Ipenema soon, then basically most of 2011 wells dedicated to wells EKA has no interest in.

I seriously think on a fundamental basis its 6:1, clearly at this stage the market doesnt agree, but thats partially due to our post CR , SPP hangover and partially due to the speculation about EKA being an imminent take over target imo.

"My opinion and its only an opinion, is that EKA is a prime take over target for someone, as will AUT. But i think a big player will TO AUT much later. Where as EKA is an easy acquisition for virtually anyone."

Everyone is entitled to an opinion but, I would suggest, only a reasoned opinion is of any value to others.

So, starting with the predator, what are the benefits and what are the costs?

AWE/ADI was a special situation. AWE had a large investment in an associate on its balance sheet but could not consolidate the O&G reserves (which seem to be going from good to better with every successful drilling).
As was proved, the Australian takeover rules are lax and fail to provide proper protection for private investors in a bid situation where the predator is starting from a platform of a significant holding (in that case, about 34%).

The double-edged threat in the offer statement was to de-list and change the Board for its own stooges once it had bare control. For that, it needed only 25% acceptance of the offer (measured against the shares not under its control at the time of the offer). That is democracy shafted by any measure. 25% accept and the remaining 75% are elbowed off their investment at a price 2/3rds the PWC conservative valuation.

I challenged the ASX on those threats inserted in the offer statement and after some time (after 8 days) they finally replied "not our problem, you need to refer it to ASIC" - I have the letters - Thanks, mate, so you don't exercise control over how your market is used? What a jobsworth! Why take 8 days to come to that conclusion and why not refer it yourself? [the UK rule for de-listing requires 75% not 50% - I haven't tracked change of directors]

But AUT is different. There is no disclosed large shareholding of that kind of order or anywhere close. A predator would still have to persuade investors once he has taken out the traders. The predator would most probably have to pay a bidder's control premium.

And, so, how does a predator justify the exercise to gain a series of minority stakes?

What is the corporate logic?

Sorry for the rant but give us something to chew over.

As to ratios - they clearly need to be re-appraised for share issues and acreage acquisitions. We'll have to wait on the reserves report to see relative values of the different acreages. So far, we "know" that Longhorn is partially in the oil zone but we don't have a clear idea of the boundaries of that assembly of leases.

I do have an opinion but not as an expert. (An expert is a drip out of control as in X,spurt). I have always worked on the theory that the relative price varies but usually returns to around the ratio that I use. I vary the ratio as the inputs into the calculation change.

It is important to use market cap as well as SP. Then it is important to give EKA credit for having 6.25% interest in the joint area compared to AUT's 10%. (Often I have seen 2 to 1 Quoted.)

AUT gets credit for its other areas. As they get proven they are worth more but they are not yet shown to have the results that are shown in the joint area.

Important also is the fact that in the capital raising EKA have given their existing holders first bite of the cherry... twice.The current one could be said to be a small dividend as one can buy and sell for a 25 to 30% profit.. AUT gave funds the first bite and scaled back the applications of shareholders. EKA gets some credit for this.

Next comes the takeover risk. EKA is in more danger of a takeover than AUT in the immediate future. Depending on the capital gains taxation liabilities at that time it may be a good or a bad thing. I dont want one to happen yet. Capital gains liability also comes into the swap trades situation.

I have recently sold a few EKA and bought some AUT at a ratio of around 4 to 1. At 5 to 1 I will consider selling AUT and buying EKA. That may change if the results with the wells in AUT only areas prove up. It is a constant review of the fundamentals that determines my relative values.

DYOR though these are only my opinions.

Remember that there is also a daily variation in both stocks and not always do the go the same way at the same time. To take advantage you must buy well on the day and sell well also. Not always easy to do.

condog said:

While it shows 4:1 its not a viable ratio on value since Longhorn began development and was sured up with the 3 Turnbulls, Ipenema soon, then basically most of 2011 wells dedicated to wells EKA has no interest in.

I seriously think on a fundamental basis its 6:1, clearly at this stage the market doesnt agree, but thats partially due to our post CR , SPP hangover and partially due to the speculation about EKA being an imminent take over target imo.

Click to expand...

Hi Condog, I certainly agree that AUT are a very highly rated prospect, and I think all AUT holders will do very well into the future (dare I say "going forward" ...... but I think we all shouldn't forget that EKA in comparison

a) has approx 25-30% less shares on issue atm
b) will earn 65% of the same future revenue that AUT will earn from the original JV acreage ......... and to be honest, the original acreage (at this point in time), seems to be in a pretty "hot" area relative to the surrounding acreages

That means that the bulk of the "ratio" in favour of AUT over EKA is based on the additional acreage which AUT is involved in ......

I agree, its looking very promising, and I'm definitely not trying to down ramp AUT in the slightest ..... but on the other side of the coin, I think if the original acreage keeps producing results like it has so far, then EKA may well be the undervalued player in the short term, and I think thats why the SP of EKA has held its ground even under the pressure of the current CR

If AUT/Hilcorp hit a "Morgan" etc on their separate leases, then I agree that AUT could "go crazy" , but until that happens I think the 4:1 ratio is a fair and reasonable ball park figure.

The other thing to consider is that AUT now requires a 9 cent (10%) increase in SP to equal a 2.4 cent increase in SP by EKA ..... and as AUT approaches that psycho barrier of a dollar, that percentage increase may be harder to break.

No particular point to my ramblings other than both AUT and EKA look the goods, but perhaps EKA should not be discounted too far without further production results from AUT's extended leases

Cheers, and good luck with your investment

Hey Barney I see no problems with a lot of what you say. EKA is also fantastic from the perspective its smaller, hence each well NPV adds more relative value compared to the mcap, hence more rapid growth.

However I still say the ultimate driver of value is the large acerage position AUT have and the quality of that acerage. Longhorn on highly restriced chokes with low declines, is lookig possibly every bit as good as the AMI. We dont really know for sure till they unchoke it or till we have a few more to compare. I guess another way to look at it is EKA have achieved a farmin deal on one small protion of the Eagleford, while AUT has achieved a farmin with twice the interest in the same acerage, plus a massive farmin in Longhorn and a massive farmin deal on Ipenema as well. And all that acerage , as its becoming derisked, with a world class operator is worth mega bucks imo.

What we do know is that on highly restricted chokes the flows where brilliant, and the declines fantastic. Both great stocks imo.

I personally favour AUT for its acerage value and Longhorn exposure, especially since hilcorp confirmed most of 2011 will focus on Longhorn drilling. Thats gunna hurt AWE and EKA at some point in late 2010 to late 2011 imo.


I totally agree with Esteons view and Nokia on the above ratios. While i truly believe 6:1 is fair the market is not yet convinced and the points Barney raises are both valid and the reason EKA is pegging well at 4:1. To me the problem with retaining 4:1 and even a risk of 5:1, is at some point perhaps after the resrve upgrade a future value to AUT acerage will be applied and when it does, i think any ratio we have at present will be completely broken.

What esteon says is extremely valuable to any holders not looking to trade as it makes the TO much harder, and hopefully any premium significantly more.

CHART TIME. I have my eyes on $1.09 in 10 trading days time and this should come through the goods if the reserves upgrades get released to the market.

5haretrader said:

CHART TIME. I have my eyes on $1.09 in 10 trading days time and this should come through the goods if the reserves upgrades get released to the market.

Click to expand...

Hope your right, certainly looks possible on your chart. LAst three runs averaged 40%. If thats the case this time 140% of 82c is $114.8

condog said:

Hope your right, certainly looks possible on your chart. LAst three runs averaged 40%. If thats the case this time 140% of 82c is $114.8

Click to expand...

You never know condog

We are well and truelly set for another run up and with alot of fundamental positives for the share price to catch up with, I think over a dollar is fair value even before the reserve upgrades get released. Here's hoping!!

Hmmm are you sure that you got them calcs correct on 140%....I get $1.96.

Just as matter of interest I think AUT will peak at $1.03 in 2 days just see what happens.
Those 3 last run ups were approximately 20 to 21 cents so 21 cents plus 81.5 cents = $1.02.5 cents.....just my guess

Huitzii said:

Hmmm are you sure that you got them calcs correct on 140%....I get $1.96.

Click to expand...

Yep im sure. Try changing the batteries in your calculator.

im talking about a 40% gain, thus for ease of calculation 140%*.82=$1.148

Alternatively 40% * .82 = .328
82c + 32.8c = $1.148

EQT Corporation makes good shale gas money at $4/million btu
August 8, 2010

.........The Marcellus, the Haynesville and more recently the Eagle Ford, are proving to be low cost sources of shale gas and are thus better able to stand the prices vagaries than the Barnett and the Woodford. Look for all three plays to continue strong through 2010.


http://www.glgroup.com/News/EQT-Corporation-makes-good-shale-gas-money-at-$4-million-btu-49918.html

Also Worth A Read
Column : Why not go for shale gas
..........
Companies entering the shale gas business at this stage will also get first mover advantage in technology and cost economics. This is what will give them a competitive edge when exploration begins there. Projections are that the share of shale gas in the US energy basket will rise steadily in the coming decades. This has encouraged the US power sector to plan a shift toward natural gas and cut emissions. Encouraged by the US’ success, India is also planning to explore and exploit its shale gas reserves. The country remains dependent on coal to meet its primary energy requirements. If India can find a big shale gas reserve, that would dramatically transform its energy landscape.

http://www.financialexpress.com/news/Column---Why-not-go-for-shale-gas/657683/

"Quote:
Originally Posted by condog View Post
Hope your right, certainly looks possible on your chart. LAst three runs averaged 40%. If thats the case this time 140% of 82c is $114.8"

140 % * 82 = $1.968
thus:
10% of 82 = 8.2 cents
8.2 * 14 (140%) = $1.148
Plus your original 82 cents
= $1.968
go figure

Possibly a couple of tree shakers, or just want to make sure they get them. But whats important is the volumes are fantastic. 10:1

And theres virtually no volume for sale below 99c making it hard for anyone to get a decent sized parcel.

Huitzii said:

"Quote:
Originally Posted by condog View Post
Hope your right, certainly looks possible on your chart. LAst three runs averaged 40%. If thats the case this time 140% of 82c is $114.8"

140 % * 82 = $1.968
thus:
10% of 82 = 8.2 cents
8.2 * 14 (140%) = $1.148
Plus your original 82 cents
= $1.968
go figure

Click to expand...

Huitzii. A 40% gain on top of 82c is $1.148 which is what Condog is talking about. Not many shares make a gain of 140% in this sort of time (let me know if you know of any!!). ;-)

I'm happy if it makes is comfortably above $1. As mentioned earlier, this is always a psychological breakthrough and will take time to consolidate over this mark. Nice little jump today although this stock doesn't like unfilled gaps so expect that to be filled over the coming week or so before moving over $1.

AUT up 6c today so far (6.52%). I'm so glad I listened to you condog, did my own lil bit of research and bought it rather than listened to the detractors. Might be time for a 90c stop-loss you think?

condog said:

I seriously think on a fundamental basis its 6:1, clearly at this stage the market doesnt agree

Click to expand...

23.5% of AUT's net acreage is in Sugarloaf. All being equal (which we don't know yet), 23.5% of AUT's value is in Sugarloaf. On a per-share basis, EKA gets about 5% less return than AUT, so that would put the ratio at 4.5:1. That would be the absolute maximum, unless you are somehow certain that Ipanema and Longhorn will both out-perform Sugarloaf.

Ipanema hasn't produced anything yet. Removing it from calculations as an unknown for now, 27% of AUT's remaining net acreage is in Sugarloaf. That makes the ratio 3.7:1.

Looks to me that a rational current-day ratio might therefore be 3.7:1, given the earlier start on Sugarloaf. Maybe, if Ipanema and Longhorn perform as hoped, it might rise one day to 4.5:1. Of course, if Ipanema and Longhorn don't perform as well as Sugarloaf, it could be way down on that.

Given the other aspects, such as being a possible takeover target and the head start Sugarloaf has over the rest, lowering the ratio to 3:1 would be reasonable at this stage.

As far as I can see, your 6:1 ratio is firmly in fantasy land.

BrightGreenGlow said:

AUT up 6c today so far (6.52%).

Click to expand...

Meanwhile, EKA is up 3.5c (14.58%) ... as it should be if it's to get to the 3:1 ratio it deserves.

WOW what a day 99.5c high so far. Some silly silly people selling imo, but then again each has thier own strategy.

Somehow i think the detractors may now know they where totally and utterly wrong. You only have to do some calculations to see what this stock is heading whilever oil is high.

John happy to help and glad you DYOR.

Kremman on the Ratio. imo Longhorn has been proven, those flows and high liquids ratios are fantastic, given restricted chokes and Longhorn makes up 65% of the play for AUT. Anyway as I said clearly the market doesnt agree with me yet. With the majority of 2011 drilling in Longhorn i think they will change there tune in coming months.


And just cracked the dollar after 4 attempts nipped out by tiny sellers.

Well, there we have it! We hit the dollar! Very happy to be holding (EKA as well ) today! It has been difficult to put my attention on work today!