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Quick Note Hartleys Research AUT.asx
Recommendation: Buy


What happened?
Aurora Oil and Gas Ltd (AUT, Aurora, Company) has reported its 60 day average flow rate for the Rancho Grande well, located onshore USA. The well has averaged 950 barrels of condensate per day with 2.7 million cubic feet of gas per day over its first 60 days of production.

Drilling at the Kowalik-1HR well is now complete, with a 6,500ft lateral achieved the longest to date by the Joint Venture.

The Company has also reported that its maiden reserve report, originally scheduled for release in late July, is expected to be available in mid August.

What does it mean?
This is an outstanding flow rate for Rancho Grande as the well has experienced only modest decline over its first 60 days. It originally flowed at 1,170 barrels of condensate per day and 3.2 million cubic feet of gas per day. The production represents gross revenue of ~US$5m for the first 60 days.

The longer lateral at Kowalik may result in better flow rates as there is a strong correlation between length of lateral, amount of proppant injected and flow rates. The effectiveness of the frac job will be know in around two weeks.

The delay of the reserve report may prove to be positive as more data can be included in the calculation potentially leading to a bigger number. We are expecting ~50 million barrels of oil equivalent in total reserves (1P, 2P, 3P combined).

Hartleys Initial View
The AUT share price has stagnated recently due to the effects of the recent SPP and equity issue. Two of the Longhorn wells may also have confused the market as there was communication between the two due to interception of natural fracturing, resulting in lower than expected initial flow rates.

We view the recent share price range, 80-85cps, as a strong opportunity to accumulate as we expect continued positive results over the remainder of the year, including the maiden reserve report later this month and a likely strong result from Kowalik.

We rate AUT as a Buy with a 6 month price target of 123cps.
5 Aug 2010
Share Price: $0.81
6mth Price Target: $1.23

Brief Business Description:
Oil and gas developer / explorer with core assets in the Eagle Ford Shale onshore USA.


Hartleys Brief Investment Conclusion
Very successful early results from Eagle Ford asset.


Chairman & CEO:
Jon Stewart (Executive Chairman)

Top Shareholders:
C A Stewart (7.8%)
ANZ Nominees Ltd (4.6%)
Haifa Pty Ltd (1.9%)
Company Address:
Level 20, 77 St Georges Tce
Perth, WA, 6000

Valuation: $1.64
Issued Capital: 253.6m
- fully diluted 278.5m
Market Cap: $204.1m
- fully diluted $224.2m
Cash Equiv (31 Mar '10): $38.0m
Debt (31 Mar '10): $0.0m

Valuation Summary
FY09a FY10e FY11e
Prodn (mmboe) 0.00 0.00 0.66
Op Cash Flw $5.2m -$0.6m $6.2m
Free Cash Flw $3.4m -$3.5m -$40.4m
NPAT* (A$m) $1.1m -$2.4m $22.9m
EPS ($, bas)* 0.5x -1.0x 8.2x
P/E (basic)* 166.0x -83.6x 9.8x
EV / EBITDA 174.1x -62.6x 5.2x
DPS ($) - - -
Franking 100% 100% 100%
Dividend Yield 0.0% 0.0% 0.0%
N.D. / equity na na na


Net Cash End $7.7m $24.5m $2.1m


2C Resource (mmboe) 68.7
EV / 2C Resouce ($/mmboe) $2.71
Source: Hartleys Research