Ann: Second Quarter Update Presentation , page-8

Hi Slick,

The comparison with the Chesapeake sale was not in the play ‘type’, but in the performance of the company - i.e. quarterly cashflows are negative and the balance sheet is entirely supported by debt and highly leveraged. This high level of leveraging came back to bite them when it was clear that they couldn’t service their existing debt because they weren’t making any money. In order to raise funds to keep drilling and avoid collateral default, Chesapeake & Petrohawk then sold off acreage and were lucky in that shale gas land values were still very high back then. They wouldn’t get the same price now following the BHP write down.

I agree that AUT’s current acreage & income would easily cover their debt if they sold now. But if the current ‘shale bubble’ bursts, and land values fall, then this position may change. If full cycle well economics are marginal/negative and AUT then find that they are too highly leveraged, then they’ll have the same problem as Chesapeake did.

http://www.upstreamonline.com/live/article296946.ece?WT.mc_id=rechargenews_rss

I believe the TXN deal was valued at ~ $14,000/acre, but the Leighton area ‘Olmos formation’ sale didn’t include an ‘Eagle Ford’ shale component.

In early 2011 KNOC paid a record $16,000/acre for Anadarko’s EFS acreage. In mid 2011, Marathon paid a record $21,000/acre for the Hillcorp Eagle Ford acreage. AUT recently paid Eureka $95million for 2,900 net acres, which you’ve got to admit looks expensive at $32,000/acre.

AUT currently have 19,200 net acres of EFS and, at $1.5billion Mkt Cap, has a value of ~$80,000/acre. Seems a tad high, even by shale standards.