oil barrel 6 mar

"Aussie Texon Petroleum Has Quickly Developed As A Low Cost/Low Risk Gas Producer in the US.


Texon Petroleum which listed on the ASX in May 2007 is one of a growing band of junior Australian and UK companies which have gone to the US to find their fortunes. From the UK one thinks of Nighthawk, Meridian and Pantheon which are listed on London’s AIM and from Australia there are Antares, Samson Oil and Gas, Amadeus, Salinas and Golden Gate amongst others. The Australian groups are partly driven abroad by the perceived absence of low risk investment opportunities and the lack of markets and low prices for gas in Australia.

But for all these groups the attraction is low cost/low risk opportunities in a country where prices for gas and oil are sky high, and in the case of gas infrastructure is abundant with strong markets.

Texon is slightly different to other groups in that it has not used its IPO money (A$20 million) to acquire assets through licensing rounds or takeovers. Instead it has an agreement with Texas-based prospect generation company Wandoo Energy. Wandoo acquires seismic from the seismic data owner Seitel Data Ltd. then identifies prospects. Under this agreement Texon has the right until 2012 to all prospects generated by Wandoo from over 140 SD surveys covering over 16,000 sq km in the Texas Gulf Shore area. Only when a prospect is identified does Texon then try and acquire the license. Of course the licence is not always available.

But Texon had 15 prospects at IPO, and in the nine months of its existence it has drilled 8 wells and added 6 new prospects so it still has 13 wells ready to drill. Of the eight wells drilled seven were shallow wells and one was a deep well. One shallow well and the deep well were unsuccessful.

The wells are strictly speaking exploration wells but are dotted around a proven hydrocarbon province. The shallow wells are around 4,000 to 7,000 feet deep, typically have reserves of around half a billion cubic feet of gas reserves, cost around US$500,000 to drill and can start paying back within 3 months. There is a regular contract operator Aurora which delivers projects on time and within budget. Texon owns the shallow wells 100 per cent, so does not have to rely on a farm-in partner. After mineral owners royalties and other royalties Texon has a 75 per cent Net Revenue Interest in the wells.

Texon is now looking at net production of 2.2 million cubic feet of gas a day and 9 bpd and is projecting revenue at US$500,000 gross before taxes and costs a month. Its average licensing costs per month are around US$9,000 a month and has a “burn rate” (G & A) of US$194,000 a month.

An aspect of the shallow wells is they do not have a long life - anything from two to five years, so it becomes something of treadmill; it is all about the number of wells, and you have to keep going. Accordingly Texon is planning on drilling some deep wells, say to around 14,000 feet. These typically have reserve targets of between 14 bcf to 100 bcf and 4 to 5 million barrels of reserve and a longer life. They are more expensive than shallow wells. The three deep wells which are due to be drilled in Q3 or Q4 2008, will cost US$800,000, US$3.2 million and US$5.1 million a throw. Texon will be looking for a farm in partner for these wells, retaining a net working interest of between 25 and 50 per cent.

So Texon reckons to drill around three shallow wells a quarter making between nine and 12 a year and three deep wells a year. It estimates it will be self sufficient by the middle of 2009 with no need for further fund raising. Not the kind of company Shell or BP would be interested in but a nice cash cow, as they say. "