Target Energy Limited is a junior oil company built on the idea...

Target Energy Limited is a junior oil company built on the idea of a ¡®better mouse trap.¡¯ Company directors considered what an upstream oil business should be over a coffee and have turned their ¡®ideal business model¡¯ into another little Australian company doing well in the United States.

Intelligent choices on acreage and a conservative business plan have seen Target Energy Ltd make a very good start in its first year, with four discoveries in their first five wells. Their first discovery, Thoroughbred, started production on 5 June this year in Colorado County, Texas, bringing cash flow to the company within eight months of listing.

Laurence Roe, Target Energy¡¯s Managing Director said, ¡°We did not want to follow exactly the same path as other companies; we wanted to cut out our own way through the underbrush, so to speak. We needed A$8.5 million to make Target Energy happen and Macquarie came back to us with the option of raising up to A$10 million. It felt good at the time knowing Macquarie had this much faith in us. Our shareholders have supported us so far and we try to be a company that delivers on its promises.¡±

With so many Australian oil juniors in the US at present the question of why and how our people are investing time, talent and money on foreign acreage is a valid one. ¡°In terms of why the United States, it has a few things that we looked for, including low sovereign risk ¨C the US is a good place to do business. We are able to get our operations producing quite quickly because we are only a few hundred feet away from gathering systems. The geology is generally pretty favourable ¨C there are a lot of people doing good work, and there has been a lot of 3D seismic in the areas in which we hold interests in the Texas and Louisiana regions. While the 3D seismic data is not mandatory for us, it does make us feel a whole lot better¡±, Roe said.

The prospect of leaving Australia for the competitive US market can be seen as a decision to become a tiny fish in a huge pond, competing with the existing local companies and the growing number of fellow Australian juniors attracted to North America. ¡°In terms of there being over 40 Australian companies with US interests, compared with the marketplace there, 40 companies is a drop in the ocean. The Americans know Australians and they generally like us. Australians don¡¯t just go over there as passive investors ¨C we like to be partners. The reality is putting money in is the first criteria. But when we get to know them and they get to know us, we are seen as good value. There are very few Australian companies that don¡¯t have a genuine and active interest in the tenements they farm into¡±, Roe said.

The popular perception of the North American oilfield is one of a region that has already enjoyed its heyday. However, Target believes that this is an area that is not near finished. ¡°While it is a mature area there are plenty of prospects. It is true that the ¡®big easy ones¡¯ are gone and have been for some time, but there are lots of modest opportunities still there that are good value with the current prices for oil and gas. All of the ¡®little blips¡¯ on the seismic that were considered uneconomic 10 or so years ago are now enjoying a renaissance¡±, Roe said.

Finding people you can trust in a foreign marketplace is a daunting prospect for any company, but for a junior oil company in a marketplace that is considered ¡®home¡¯ to the oil and gas industry, navigating a path through all the spin and promises of the hundreds of companies operating there can be more than a challenge. Roe puts Target¡¯s success down to having trust in good people. ¡°We have good contacts ¨C you must know who you are dealing with. One of the really important things in this business, especially for success overseas, is to have a contact base you can trust.¡±

¡°Everybody has their own way of sourcing. We owe our contact base to a combination of pooling the contacts we had nurtured during our early careers, we stuck with people we knew or were introduced to. We have also developed contacts through prospect expos. To go to NAPE, the North American Prospect Expo in Houston is an education. There are literally hundreds of companies there, many of which we hadn¡¯t heard of, but which are established and well known in their local areas of operations¡±, Roe said.
Target Energy¡¯s Texan interests have earned them early success with the Thoroughbred and Garwood discoveries currently producing. With a 25% working interest in two producing wells in the productive Colorado County the company¡¯s first wells have proven to be the result of intelligent choices and hard work. ¡°We were astounded with how much production there is going on in Texas. There are many shallow wells that are around 5,000 ft (1,524 m) in the area and many deep plays in the sector. In Texas they are going deeper and deeper all the time, in particular chasing what they call the Wilcox sands. They go to 17, 18, 20,000 ft (5,181.6 m, 5,486.4 km, 6,096 m), they are accustomed to the deep wells¡±, Roe said.

But it is this junior¡¯s Louisiana interests that may prove the most productive, with acreage in four of the state¡¯s parishes, Target is excited about the region¡¯s geology and the potential for production. Within their St Martin Parish acreage, Target Energy has a 10 - 25% working interest in what they call their ¡®Section 28¡¯ program consisting of the Snapper A1, Snapper A2, Snapper A3, Bayou Berard and Parks North wells.
The investment appeal of this drilling program is the area¡¯s geology, the Snapper wells and the Bayou Berard well edge a textbook salt-dome trap, considered very prospective for hydrocarbons. ¡°In Section 28 the salt dome has produced a substantial amount over the years. With 3D seismic we can become quite surgical about how we go for the plays. There are reserves that have been identified on the 3D up-dip from existing production zones. There are so many traps and salt domes in the area -you only have to look over your shoulder to see someone producing.

¡°The recent success at Snapper A2 has again confirmed the validity of this play. While we still have to test the well, the wireline logs suggest that Snapper A2 will meet the upper end of our expectations.

¡°After Snapper A2, the rig is moving to the Bayou Berard prospect. It will drill a fault compartment that appears undrilled at one of the key producing intervals in the area. Parks North, a 25 Bcf prospect which will be drilled in early 2008, is a more conventional fault-controlled play away from the salt. It looks good on seismic with amplitude versus offset anomalies (AVOs) at its target horizons¡±, Roe stated.

Operator Cypress Productions is currently producing gas and condensate at a rate of 1.3 MMcf per day from the Snapper A1 well and Roe stated that the field represents an opportunity to establish reserves of 600,000 bbl and 2.25 Bcf of gas and condensate. Snapper A2 may hold up to 1 MMBo and 1.4 Bcf.

Target Energy¡¯s interest in the Louisiana Jefferson Davis and Acadia parishes, are the Teche and Bandito prospects named the ¡®Evangeline¡¯ program in which Target will earn 10% and 15% interests respectively. The Evangeline program is operated by Aspect Energy LLC, holder of one of the largest onshore 3D seismic databases of the upper Texas and Louisiana Gulf Coast region. ¡±Aspect Energy is a very active, very successful and well known operator¡±, Roe said.

The Teche prospect, which is currently drilling, has potential recoverable volumes of up to 22.4 Bcfe. The well is expected to go to 12,500 ft (3,810 m). The Bandito prospect is planned to be deeper at 12,900 ft (3,932 m) and it¡¯s hoped by early first quarter next year will be confirmed as a discovery with volumes of up to 42.3 Bcfe of gas and condensate.

Target Energy likes to mix its risk and reward within its acreage interests, Roe said, ¡°Our prospects vary in size from 0.75 Bcf in our Thoroughbred well right up to our Berwyn prospect where we are chasing over 115 Bcfe. We hope our shareholders are happy that within our first 12 to 14 months we will have 10 exploration wells under our belt and four out of the first five are commercial. We are very pleased with our progress to date¡±, Roe stated.

Target Energy¡¯s interests at the moment are all on the Gulf Coast of North America but Roe is quick to point out that, ¡°it¡¯s not a hard and fast rule for us. I like California and I like the Rockies, but we will wait and see what opportunities come up in the future. Our heart and soul will remain in the US - we have had success there. We have looked in the offshore sector as well but there is no area we like specifically. There are some good low-risk prospects out there but offshore tends to be quite expensive once you drill the well, construct facilities and tie it all in.¡±, Roe said.

Roe and the directors at Target Energy have made a great start to what should be a very successful company, with their experience in oil and gas and the company¡¯s philosophy of delivering valuable results for shareholders. Roe said, ¡°We are very proud of the fact we have income in our first year. In reality we have only covered our costs, but now we have the potential to turn a healthy profit with our exploration wells next year. The market has recently livened up for us although we are still at the 29 cent mark.

¡°It is crucial to keep talking to your brokers and to keep getting your story out there; otherwise you can struggle a bit to be heard. We are a company focused on activity, that under-promises and over-delivers and so far everything is going according to plan.¡±