[Report dated 28 Aug 2012 - prior to today's positive ann re the horizontal drilling success and the impending fracking]
AUSTIN EXPLORATION LTD
Excellent Log Results from Niobrara
Austin Exploration Limited (“Austin”, “AKK”, “Company”) has reported excellent log results from the first well at its Pathfinder Project, which is targeting the Niobrara Shale in Colorado. The well has exhibited excellent resistivity (an indication of oil saturation) and fraccability, which measures how amenable to fracture stimulation the rock is. The results are comparable to or exceed logs data from some of the best performing wells in the play.
In a very bullish sign, the Company will now proceed to drill its second well at the project immediately. The vertical section of well 2 will be drilled concurrently with engineering work to assess the optimal orientation for the horizontal sections of both wells. This undertaking will save the Company ~$500k in costs as opposed to drilling the second well on a separate pad at a future date.
The engineering work will take ~20 days and then the two horizontal sections will be drilled, which could take 7-10 days each (Hartleys estimate). Timing of fracture stimulation operations will be subject to availability but we do not anticipate significant delays. We expect that flow rates should be known in November / December.
Our base case valuation of 5.5cps for the Pathfinder Project assumes initial production of 350 barrels of oil per day per well. This is further discounted for risk to arrive at a valuation of 3.8cps. The upside valuation case is >20cps [the side column of the report values the Pathfinder at $92.8M based on 3.8cps or about $500M at 20cps]
The Gordon Capital Incremental Oil and Gas Ltd report at the address below values Florence at $31M based on known and anticipated production without the Niabrara shale, so highly valued by Hartleys as noted above.
Incremental's Florence acreage commences within 400m of the AKK well.
Gordon report states:
"The Florence asset has proven reserves, and has significant potential from the deeper Niobrara chalk play. Drilling results from Austin Exploration (AKK) highlights the significant upside from the deeper Niobrara play, which is known to be present below the current Florence field – and is now likely to be material to IOG."
Today's AKK release stated, in part:
"The Company has successfully drilled a 4100ft horizontal leg to a total measured depth (MD) of 9870 ft at its Pathfinder project in Colorado. The 4100 foot (approx 1,250 metre) leg of this well was drilled successfully with no operational issues experienced during drilling. The drilling of the horizontal leg of the well was successful while staying in the zone of interest that the Company determined to have the best formation characteristics and pay potential within the Niobrara Formation. Hydrocarbon shows were encountered throughout the drilling of the horizontal leg.
The Company will now immediately move forward with preparations to complete and frac the well. A multistage hydraulic fracturing stimulation treatment is expected by the end of October. Logging data, cutting analysis, and pressure tests will be used to design the hydraulic fracturing treatment. Oil flow results expected in time for the Company’s AGM in November."
This all looks very positive for IOG and their 24,000 acre holding especially as the Niabrara play has not been factored in to the Gordon Capital report which values IOG at 34cps in total and the Hartley's implied value of the shale.
Given all the above, it is amazing to me the lack of interest in Incremental in the market and on this HC thread; especially when compared to AKK...amazing what a difference 400 meters makes.
IOG Price at posting:
24.0¢ Sentiment: Buy Disclosure: Held
(20min delay)