euroz still likes aut , $5.20

Price Target: $5.20/sh

Reason For Update: Reserves Revision & CY’12 Ops Programme

What We Know:

AUT has issued revised 1P and 2P reserves as a condition of the US$300m (LIBOR plus 2-4%) senior debt facility.

1P reserves increased by 99% to 21.3mmbboe (from 10.7mmbboe as at Dec 31).

2P reserves increased by 90% to 42mmbboe (from 22.2mmbboe).

AUT has updated the drilling schedule for CY’12, guiding a total of 123 wells to be drilled (C/F previous guidance of 99 wells).

AUT’s net participation on this basis will be 33.6 wells.

This will underpin a net exit CY’12 production rate (pre-royalties) of 18,900boepd (or ~14,200boepd post).

What We Think:

Movement in the reserves is in keeping with our expectation that current drilling programme – designed to hold acreage by production – will translate in a majority of the current 82.8mmbboe of 3P reserves converting to 2P category and at least 30mmbboe of 1P reserves, as at the next report date of Dec 31 of this year.

A feature of AUT’s reserves position is the high liquids contribution – light oil, condensate and NGLs account for 75% of the reserves’ figures.

This makes for a highly material reserves position even at the current US$80/bbl oil price; and we remain bullish on the longer term oil price (we are at US$90/bbl this H and next moving to US$100/bbl longterm).

The accelerated development drilling programme for next CY is slightly ahead of our previous forecast of 114 wells.

Of greater significance is AUT’s net well participation (33.6wells); higher than our estimation, as a function of a greater focus on the Longhorn acreage where AUT has a more material 31.9% equity interest.

As a result, AUT will exit CY’12 producing +14kbboe/day (up from our previous +11kbboepd forecast) versus current rates of +3kbboepd.

Beyond which, a further increase to the pace of development is likely, which will improve the current forecast peak net production of 29kboepd.

Of equal significance is that the Longhorn acreage is of relatively higher liquids yields that say the Ipanema or even Sugarloaf areas.

Consequently, AUT will generate circa US$195m in revenue for CY’12 applying current spot prices; a 4x increase on our 2011 forecast.

Our valuation has improved to A$5.20/sh (vs A$5.04/sh previously).