AUSTIN EXPLORATION LTD Eagle Ford Drilling Underway Austin Exploration Limited (“Austin”, “AKK”, “Company”) has provided an update on its US operations. Drilling activity has commenced at its Birch Project targeting the Eagle Ford Shale and an increase in production has been achieved from the Company’s Kentucky oil assets. The Beach Energy Ltd (“BPT”) takeover bid for Adelaide Energy Ltd (“ADE”) is also significant for Austin as it is partnered with ADE in PEL 105. Birch Project – Eagle Ford Shale Drilling Underway The Company has commenced drilling at its Birch Project in Burleson County, Texas. AKK has 4,750 net acres at the project where it plans three vertical appraisal wells prior to drilling a horizontal multi-stage frac well next year. The Krueger #1 well is the first of these appraisal wells, which will provide the Company with additional information on fracture orientation, rock composition and other parameters required to determine the optimal design and location for a horizontal well. Significantly, Austin completed substantial due diligence prior to completing the acquisition of the acreage that confirmed that it is in the oil / wet gas window with production from vertical wells on / nearby confirming oil flow to surface from the Austin Chalk / Eagle Ford formation. We have a risked valuation of 4cps for the project, with upside of 10cps. PEL 105 – Implications of Beach Takeover of Adelaide Austin has a 50% working interest in the PEL 105 block, located in the Cooper Basin. The other 50% is held by Adelaide Energy Ltd, which is the subject of a $94m on market, cash bid by Beach Energy Ltd. We have assumed that the majority of the bid value can be ascribed to the Cooper Basin assets, including PEL 105, for their non-conventional potential. This implies look through value net to AKK for PEL 105 of $10m-$15m. The Joint Venture is scheduled to spud the Pirie-1 oil appraisal well, which we now assume will be operated by BPT. Pathfinder – Niobrara Progressing Austin also owns 9,741 net acres in the South West of the DJ Basin that are prospective for production from the Niobrara Shale. Historic oil production at the nearby Florence Field, from the Pierre Shale, as well as high resistivity and porosity in a very thick section provide encouragement for commerciality. Results in the Niobrara by others have been mixed; however, we believe that progress is being made and it is only a matter of time before more widespread success is achieved. Drilling at Pathfinder is scheduled for H1 2012. We have a risked valuation for the project of 4cps, with upside potential of 11cps. Kentucky Oil Production Increase The Company has announced that it has increased production at its Kentucky Oil Project from 1 barrel per day to greater than 30 barrels per day. Whilst this is not significant in terms of our valuation when compared to the non conventional Eagle Ford and Niobrara projects, it shows the impact that new management and technical staff can have. Undervalued with Significant Near Term Newsflow Austin remains undervalued on a fully diluted basis, relative to peers, and has near term newsflow related to drilling at both the Birch Project in the Eagle Ford as well as at PEL 105 in the Cooper Basin. We rate Austin as a Speculative Buy with a 12 month price target of 6.4cps. Hartleys Limited ABN 33 104 195 057 (AFSL 230052) 141 St Georges Terrace, Perth, Western Australia, 6000 Hartleys does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of
AKK Price at posting:
3.2¢ Sentiment: Hold Disclosure: Held
