TXN - Texon Petroleum

[Agentm]

ASX Release

15 February 2011

FIRST EAGLE FORD WELL
60 DAY PRODUCTION RESULT

Texon advises that its first Eagle Ford Well, Tyler Ranch EFS #1H, has produced 31,099 bo + 40,987 mcfg over 60 days on a restricted choke. This represents an average daily oil equivalent rate (without taking into account the high calorific value of the gas) of 632 boepd (518 bopd + 683 mcfgpd) converting gas on the basis that 6 mcf of gas equals 1 barrel of oil equivalent.

With a Henry Hub gas price of US$4/mmbtu, the Company receives approximately US$6.80/mcf due to the high heating value of the Eagle Ford gas and the presence of natural gas liquids providing a valuable uplift in revenue in addition to the oil revenue.
The second period of 30 days averaged 548 boepd (443 bopd + 631 mcfgpd).

During the last 15 days of the 60 day test time, there were several days when the minimum temperature was below freezing. This may have affected production on those days. Also, there were 5 days where the gas pipeline inlet compressor shut down resulting in reduced oil production (av. 230 bopd on those days).

With warmer weather and the compressor now functioning properly, the rate is back up to some 650 boepd (550 bopd + 601 mcfgpd).

Texon has a working interest in the well of 82% and a beneficial interest (NRI) of 61.6%.

 

[estseon]

60 day figures out.

They had problems with temperatures and a compressor.

They report that the flow now is averaging 550 bbls + 601mcfg = 650 boe per day

1st 30 days were 594 bbls + 735 mcfg = 716 boe per day (I've used the 6,000 cfg = 1 bbl conversion)

 

[bennywizard]

Today's announcement looks very good to me, and yet no price movement so far.
Any thoughts?

 

[condog]

Those 60 day figures are fine imo, im gunna be buying in. Thats plenty economic now to take a risk on and to me reduces the risk sufficiently to begin buying in on the $135M mcap. Although the 2nd EFS Horizontal well in late march will be the true derisking imo.

Id imagine that result will probably lead to a broker upgrade in the next few days.

With a 600 boepd target for end of Q1 now looking easily achievable, im valueing it at around $1.40 at end of Q1. If they attain 900boepd in q2 as they are targeting my valuation will rise to approx 1.65 or so.

Right now i think $0.95 to $1.10 would be fair value on todays news.

Time will tell.

 

[condog]

My TXN numbers for pourousal / discussion. Please cross check, may contain errors.

 

[condog]

Crrection the 600 boepd was NRI corrected. So here is my corrected numbers



If right now it already has over 600boepd and its likely to keep it for a while based on current production then youd have to say its priced attractively in light of the new results, which imo add in the value of the eFS horizontals as economic. Up until today my opinion was dont count the Horizontals till they prove to be economic.

 

[Assasin]

Gee your timing is good Condog, SP down today on the back of good news.

 

[Sharejon]

Do hilcorp use compressors in their wells?

I've never really investigated technical specifics about the wells, I just analyse declines/production/reserves.

Cheers.

 

[Agentm]

sometimes there are some amazingly funny things being posted by people..

you gotta laugh

reminds me of a chick at the grammys doing it tough and gettin all toungue tied.. anyways enjoy the remix.. its almost as comic as the comedy seen lately

 

[condog]

Gee your timing is good Condog, SP down today on the back of good news.

Yes a nice oxymoron / juxtaposition blah blah whatever, anyway yeh it was nice to buy in the mid 70's after probably thier best news yet. To see the 60 day flows with minimal decline after those very concerning 30 day declines, im surprised it didnt really kick up. Got hold of some decent parcels too with no real dificulty.

I honestly think on the back of those 30 day numbers this thing was a real worry. But right now the 60 day numbers have basically eliminated that concern. Definitely worth a punt on these numbers.

Anyway the market does stupid things, im sure sooner or later they will realise. until then we wait.

 

[Agentm]

Do hilcorp use compressors in their wells?

I've never really investigated technical specifics about the wells, I just analyse declines/production/reserves.

Cheers.

the compressors takes the gas from the well up to the right pressure for the gas pipeline

it would be something hilcorp uses in all its operations involving gas pipelines

cheers

 

[Agentm]

rbs valuation makes sense

Valuation and target price – increasing both (again)

Should the test of Teal EFS #1H prove successful, Texon's WI in the EFS in Leighton-
Mosman-Rockingham-Sutton has potential for 30-34mmboe of resource. At US$5.00/bbl, and risked to 75% this equates to approximately A$0.70/TXN share. For the Olmos reservoir, there are 24 further Proven and Probable undeveloped locations to be drilled with certified 2P reserves attributable to Texon’s WI totalling 2.9mmboe at Leighton. Our valuation from production is A$0.32/TXN share. The Olmos reservoir in Mosman-Rockingham, other leased targets and the Seitel agreement offers further upside potential.

The second horizontal well in the Mosman-Rockingham leases in the vicinity of the MR #1 well which tested the EFS – Teal EFS #1H – recorded logs comparable with those from TR EFS #1H.

A fracture stimulation rig and crew have been contracted for March 2011 for this well.
In terms of valuation, EFS acreage can be valued from below US$10,000 per acre to over US$40,000 per acre, depending on its prospectivity – largely the level of liquids – and the stage of development. With Texon holding a nett 4,500 acres, this would range from A$0.25/TXN share to A$1.00/TXN share for the EFS reservoir.

Our NPV calculation determines a value close to A$10 per boe. Risking this to 50% generates a value close to A$0.90/TXN share. Successful production testing of Teal EFS #1H would be expected to see this valuation rise.

The Olmos reservoir – the underlying cash flow

Production models indicate each US$1m well into the Olmos reservoir will access average reserves of about 150,000 barrels of oil equivalent (boe), generating free cash flow of about US$6m per well


Valuation and risks

Our risked valuation of TXN shares has risen to A$1.16/share (from A$1.05/share) with the successful production test of the first horizontal EFS well. There is material upside to this valuation should the second EFS well prove to be liquids-rich, and should exploration success in the Olmos reservoir match Texon’s recent experience. Success in the high-upside gas plays such as Maroubra would also be expected to have a positive effect on share price. Texon is adequately funded for its next phase of drilling. The risks relate to exploration success, prospect size, and the oil and gas prices in the US, as well as the AUD/USD exchange rate.

 

[condog]

sometimes there are some amazingly funny things being posted by people..

you gotta laugh



......rbs valuation makes sense

Time to grow up agent. get over it dude.

 

[Sharejon]

sometimes there are some amazingly funny things being posted by people..

you gotta laugh

It works both ways hey agent, I was quietly amused at your silence after the 30 day averages.

These figures are such a massive improvement over the 30 day averages, good to see.

I don't hold but have kept an eye on TXN's progress and might buy in in the near future if I sell some other shares to free up funds. This has always been my sentiment with TXN though, if they came up with the 60 day goods for this well.

 

[Agentm]

It works both ways hey agent, I was quietly amused at your silence after the 30 day averages.

These figures are such a massive improvement over the 30 day averages, good to see.

I don't hold but have kept an eye on TXN's progress and might buy in in the near future if I sell some other shares to free up funds. This has always been my sentiment with TXN though, if they came up with the 60 day goods for this well.

silenced?? what are you talking about, i post every few days, sometimes every day?

loved the figures myself, ip was pretty good..

the figures were in line with the region, and at 45 days the announcement from texon demonstrated great success

imho what texon are doing in the efs is pretty impressive,

cheers

 

[starman45]

The sellers are trying to breakout of support 0.75 ish.
A weekly close below this area could give many chanches to sellers.
Daily chart.

 

[bennywizard]

Thanks Condog for your reply to my message....Its amusing to me at how when good announcements are released the market doesn't necessarily react the way you would expect...or there is often a delayed reaction.
I had already topped up yesterday after the announcement that seemed really good, they then dropped so I topped up some more (thanks to my AUT Margin loan)

 

[Sharejon]

Agent,

I know that, and your input is very constructive, for that I thank you.

There was no offence intended but I didn't recall reading a post around that timeline that actually voiced your opinion about the 30 day rates.

Thanks for the compressor reply, I thought there would be a possibility that Hilcorp uses the natural pressure from the ground to induce the oil flow. A company I used to own that is drilling in the Amadeus Basin used this approach I believe, I could be wrong though.

This was a wildcat well though, and obviously TXN's drilling is in an established shale, so it is completely different story really. Additionally this speccie company I'm talking about didn't actually frac their well.

In terms of the price movement, if I held I wouldn't be concerned really. When the 45 day results were released it didn't really do anything that day, although in the next few days TXN went on a bit of a run. Sometimes news digestion by the market is delayed, and some increased buying from others will cause some people who are sitting on the sidelines (liking the 60 day announcement) to buy in.

 

[Sharejon]

I kind of worded what I said about the compressor wrong.

I meant something along the lines of "I wasn't sure whether Hilcorp used the natural pressure from the ground (like the Amadeus basin company i used to own) or used compressors."

anyway cheers.

 

[Agentm]

sharejon

30 day flow rates are in line with the san miguel

45 day rates were all good, and showing a slower decline than san miguel

60 day flow rates, even with the production losses and the compressor issue still had a slower decline than san miguel you could add a few 1000 bo for those days of losses

i know san miguel has a 18/64 choke and they ran 100 MESH 15000# OTTAWA SAND 40/70 PROPPANT 103,938# 8667 BBLS H2O more or less throughout the frac

there is no liner info i can find on that well

my view on the efs is very much in line with many out there, i see it as a genuine oil play, with some very very attractive economics.

rbs give a great valuation for txn, and clearly the upside from the wells next month, the second efs well, the 3 olmos sands wells, will impact on the way people value the share, i recall when adi used to announce things to the market the sp would tank..

i look forward to their research notes next month and i am certain they would be finding it hard to post a negative report.

texon is a pretty exciting proposition as it is an operator, AZZ has previously acted as the first aussie operator in the efs and been a mixed bag for investors, i feel texon is very forthright and relaying accurate data that is easy to analyse. they have a focus on many plays in the AWP acreages, and its likely to become a great investment for me in the future..

my view on the operations of dave mason and john armstrong are that they will succeed and imho progress just as their business plan implies

all good for 2011 imho