http://www.copyright link/content/dam/images/g/x/i/z/i/z/image.related.afrArticleLead.620x350.h0h6ua.png/1515730281030.jpg
Things are looking up for Freedom Oil and Gas boss Mike Yeager. Louie Douvis
by Peter Ker
Oil prices were below $US40 per barrel when Mike Yeager decided to take another punt on US shale.
"We got the bulk of this when it was truly uneconomic, you have to take almost a positive view of the cycles of the industry and grit your teeth," he said, when asked about the shale acreage his company Freedom Oil and Gas acquired in the Eagle Ford region of Texas in early 2016.
By the time Freedom's first two wells started flowing in October 2017, Brent oil prices had recovered to $US55 per barrel, and by Friday they were touching three-year highs near $US70 per barrel.
Freedom's ASX listed shares, of which Yeager is the biggest holder, have tripled since September and were testing a 45-month high on Friday.
May14Dec15GMT+1000 (AUS Eastern Standard Time)Jan13Jan1820253015.47534.595
Last updated: Sat Jan 13 2018 - 7:27:41 AM View full quote
ASX AnnouncementsExpand
But Yeager has been around the oil business long enough to know that ups and downs come with the territory.
"It is hard hard work, you can never quit and you just have to have faith that what goes down will also come back and obviously right now we are enjoying that," he said.
"But we could be on the other end of that at some point, we just have to have the faith to work our way through it. This industry is a little fickle like that."
Freedom was an ASX-listed drilling contractor when Yeager and a group of associates recast it towards US shale in 2013.
The stock is unusual in that its assets, focus and leaders are in the US, yet its primary listing remains in Australia, making it one of the few producing, pure-play US shale stocks on the ASX.
Freedom's first two wells initially produced more than 1000 barrels of oil equivalent per day, and in a bonus, the oil is particularly light and sweet, meaning it can be sold at the premium Light Louisiana Sweet (LLS) price.
LLS has recently been trading at about a $US5 premium to the US benchmark oil price, West Texas Intermediate (WTI) crude, putting it roughly on par with Brent oil prices.
Freedom hopes to drill four more wells in coming months and Yeager says contractor costs were still reasonable.
"The price of services are still down by a third from what they were at the peak, so we have got the best of both worlds right now," he said.
The big question facing the US shale sector is whether the recent recovery in oil prices will spark a repeat of the over-production that drove prices lower in the first place.
Supply discipline
Production from US shales stayed high for longer than expected through the oil price rout, partly because many producers had contracts with landowners that enforced minimum drilling obligations.
"That forced a lot of activity to take place when perhaps it was less than fully economic," said Yeager.
But Yeager points to several factors that should enforce some supply discipline on the sector.
"I think the (oilfield) services industry will put some kind of a brake on the speed at which we can all operate," he said.
"The services industry is pretty well fully-utilised and is not rapidly gaining capacity. The number of drilling rigs and number of frack units is going to creep up but they are not going to jump up materially overnight because it takes a lot of time and money to bring that equipment online, train the people and make sure you do it right.
"The second thing is the financial state of many companies is, although improved, still not robust ... they are going to go slower and those people borrowing money are being a bit more careful.
"So overall I think there are a couple of different things that are going to prevent the industry from doubling or tripling [production]. It will increase, but it will be at a very measured pace and one that could be absorbed in a good global economy.
"There is reason to think that the oil industry wants a bit of stability and is willing to stay a little bit more disciplined in order to get that, so i'm optimistic."
Valuations in the region have more than tripled since Freedom bought its Eagle Ford territory for about $US1000 per acre in early 2016, but Yeager indicates that Freedom is unlikely to be making big acquisitions any time soon.
"Our primary focus is to take the money we have raised and put it into that drill-bit now that we think we have a good economic environment to do that. If we can get these wells down into the $4 million to $4.5 million range, get the kind of oil recoveries that we think we are experiencing, we can drill a very economic well," he said.
"We do think there is some running room around us and over time that is something we would certainly give some consideration to but right now we just want to give our shareholders some good strong wells, try to reward our shareholders with a stock price that is worthy of investing in and then see what happens."
FDM Price at posting:
30.0¢ Sentiment: Hold Disclosure: Held
