So for the newcomers to this stock...here is a quick description of where we are at....
Company Overview
1. Ex Arrow Energy Mgmt team driving this company.
2. Company has vast acreage on the north eastern side of NT and in western QLD.
3. Companies such as this are valued by EV/Acre. On this measure AJQ is one of the cheapest unconventional Oil/Gas plays in Australia.
4. Armour is targeting a total of 9 TCF (Trillion Cubic Feet) of gas resources and reserves from the Lawn Hill Shale Play.
5. Target gas resource sufficient to potentially supply 6 million tonne per annum Liquefied Natural Gas (LNG) production for a period of 25 years.
6. Has signed a "Heads of Agreement" with APA to facilitate transportation of gas to the eastern seaboard of Australia and the NT gas market.
7. Has just engaged a new high profile CEO Robert De Weijer. Previously CEO of Dart Energy and COO of Arrow Energy has experience with Shell in Europe, Middle East and Asia.
8. Had cash of approx $40m as at the April Quarterly the majority of which will be spent on exploration this year.
The 2013 Wells:-
1. Target is the highly prospective 125m thick Lawn Hill 4 Shale Formation where consistently high gas readings (up to 8% in drilling mud) were recorded by Comalco when drilling the nearby Egilabria #1 well in the early 1990s.
2. Three (3) verticals wells to be drilled at Egilabria in this program (in 2013) and one of which (Egilabria #2) will be frac'ed by Halliburton (six stage frac) sub horizontal lateral well.
3. Six Stage Frac'ing of 1st well to take place in July 2013 on Egilabria #2.
4. On Sunday 12 May the company "Spud'ed" the 1st well Egilabria #2.
5. 1st Gas Encountered in Egilabria #2 at 425m and at 502-545m and sealed off for later review and are expected to be tight sandstone reservoirs.
7. Company recently announced it had completed the intermediate casing (pictured below) and is drilling ahead.
Synopsis:
My thinking is that they will drill and frac the 1st well and determine the gas flow (likely to be big)... they will then drill 2 additional holes (but not frac) to confirm the same shale exists over a wide area... then release a substantial reserves statement... and then Farm out their ground at top $$ to some of the majors lurking in the background in the region ie Total, Santos, Hess, BHP Etc?.
This is potentially a better scenario than the strategy of CTP for instance ... who have farmed out their acreage for a very cheap per acre amount prior to discovery of gas in those farmed out area's.
So I think the current drilling program is a massive value add exercise prior to a major farmout program. Either way we will know by the end of July when the 1st well fracs.
In fact, we will probably know in the next few weeks as the vertical section of the well encounters the Lawn Hill shale. Expect some unfrac'ed gas (a taste of what is to come) to be encountered at that point.
AJQ Price at posting:
19.0¢ Sentiment: Buy Disclosure: Held
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