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again, from a uk investor

Texon Petroleum Awaits Bids For Its Oily Eagle Ford Shale Leases As It Seeks EFS “Look-Alikes” To Add To The Portfolio


These are interesting times for shareholders in ASX-quoted Texon Petroleum. The Australian company, which holds 7,200 acres of leases in an oily sweet spot of the booming Eagle Ford Shale in Texas, is looking to cash out of some of its properties to secure value for shareholders and reinvest cash in new growth projects or, as chairman John Armstrong puts it, projects with the potential to “create Eagle Ford like” value.
The divestment process is already underway. Earlier this month the company announced it had sold its 63 per cent interest in the producing Olmos reservoir and the overlying Wilcox reservoir in its Leighton oilfield to US company SV Resource Partners for US$12.4 million. (Joint venture partner, AIM-quoted Global Petroleum, sold its 15 per cent working interest for US$2.8 million.) The US$12.4 million price tag was significantly lower than analysts had been expecting - there had been perhaps overly optimistic forecasts of US$21 million but the eventual sales price was far short of estimates calculated on the US$6.7 million raised in July 2010 when a 20 per cent working interest was sold off.
These Olmos leases, where the shallow wells deliver initial rates of between 170 and 445 boepd, have been a solid investment for Texon. Last August the company informed shareholders that its US$11.3 million investment developing the Olmos reservoir at Leighton had generated production revenues of US$11 million, and rising.
But the company saw diminishing value uplift from this development project and in October 2011 hired Houston-based divestment specialists Albrecht & Associates to find buyers for the leases. The sale of these assets adds to the company’s existing US$13.7 million in cash balances and strengthens its hand in negotiations to sell the jewel in the crown, its Eagle Ford Shale leases.

Albrecht & Associates and Australian research house RBS Morgans have been charged with finding bidders for the Eagle Ford assets. Texon, which in the December 2011 quarter reported net production of 1,235 boepd and revenues of US$2.6 million a month, has a sweet position of 7,200 acres in the heart of the oily Eagle Ford Shale, with an average working interest of 93 per cent. Analysts at Brisbane-based RBS Morgans, which ranks the stock a BUY with a conservative price target of A$1.04 per share, reckon the sale could fetch between A$200 and A$279 million. The aim is complete a deal by mid-year.
The A$153 million market cap company has drilled four wells to derisk the play on its acreage, delivering initial production rates at the high end of results for the region at around 1,500 boepd. The third and fourth wells, Tyler Ranch-2(H) and Hoskins-1(H), benefited from the experience gained on the first two wells and are expected to be a guide to Eagle Ford well productivity in this area, with new wells forecast to produce over 600,000 barrels of oil equivalent, 90 per cent of which is high value oil and gas liquids and 10 per cent gas. The frac work on the third and fourth wells produced 28 per cent and 14 per cent more oil respectively in their first 60 days production, compared with Texon’s first Eagle Ford well. In all, these four wells helped derisk the Eagle Ford play on the company’s leases, which it now hopes will be a tasty prize for operators looking to expand their exposure to the highly oil productive part of the shale play. As a result of this work, the company’s proved, probable and possible EFS reserves leapt 125 per cent to 11.3 million boe – although the overall potential could be more like 59 million boe.
The Eagle Ford Shale has been one of the stand-out successes of America’s shale boom, with its high oil and liquids content insulating it from the downside of low gas prices. The glut of shale gas in the US has depressed gas prices, recently trading under US$3 per MCF, prompting operators to rein in spending in dry gas plays. Activity levels remain high in the Eagle Ford and other oily plays, however, buoyed by sky high oil prices and demand for natural gas liquids. Early movers in the play, like Petrohawk (interestingly, Texon’s new CEO Clifford Foss is a former VP Exploration at Petrohawk) and Chesapeake, built fortunes on the back of the Eagle Ford, which in recent years has attracted investment from the likes of China’s CNOOC (which spent over a US$1 billion to buy a 33 per cent interest in Chesapeake’s acreage) and natural resources giant BHP Billiton (which paid US$12 billion cash to buy Petrohawk).
Investors will be watching to see if Texon’s commitment to derisking its Eagle Ford acreage, which represents an investment north of US$50 million, is now rewarded in the coming sales process. They will also be watching to see where it starts leasing next in its hunt for the next Eagle Ford lookalike.