from fat prohets this afternoon...hot off the press
AusTex Oil
05/11/2014 FAT-MIN-447
- AUD $0.147
Speculative
HIGH
3Q14 records fall
The September quarter 2014 was another good one for AusTex Oil, with production records falling. The operational review for the quarter confirmed the growth trend seen in oil production since the beginning of production at Snake River. While confidence in the potential of the Snake River blocks has improved with further reserve upgrades.
Production on a barrel of oil equivalent (boe) basis was 52.1% higher than the corresponding quarter in 2013, at 113,325 barrels. The following chart shows quarterly production:
Source: AusTex Oil
The continued rollout of wells was the primary driver behind the result, with the company reporting 11 wells being reclassified as “pumping-operating” during the quarter. The average daily rate of oil production increased marginally from the month of August, to 1,225 boe. The increase represents a 0.6% rise from the previous month. The company reported the greater presences of water in five of the wells recently brought on stream. Investigations are underway to identify the source of the water in the wells, with the company expecting to report the results shortly.
At 30 September 2014, the company had 52 wells classified as producers including four non-operated wells.
At the same date, there were 25 wells at various stages of completion. Of the wells currently completing, seven are in the final flow testing stage of completion. Ten wells have been drilled and fracced, while the remaining eight wells are at the drilled stage only.
Based on the current acreage spacing of 80 acres per well, there are approximately 270 sites that remain to be drilled. The company is still investigating moving to a spacing of only 20 acres per well. The company now holds circa 10,500 acres of Snake River ground, up from the previous 9,700 acres.
As a result of the production profile of Snake River, 1P (proved) and 2P (proved plus probable) reserves have been upgraded by 71% over the previous numbers. The 1P reserve now stands at 18.9 million boe and 2P reserves at 25.7 million boe.
The infrastructure required to collect natural gas is progressing, with all the company’s natural gas producing wells now tied into a various gas delivery points. The following figure shows a schematic map of the new gas infrastructure:
Source: AusTex Oil
The sale of natural gas from Areas 2 and Areas 3 (shown in the above figure) have now been contracted. The contract provides for a flexible delivery platform to potentially multiple gas gathers. The company expects to receive a higher premium for natural gas sold through the new contract compared to the existing contract. The existing contract covers natural gas production from Area 1 and sections 24 and 25 of Area 2 and has until June 2017 to run. The company estimates that 40% of natural gas is now sold under the terms of the new contract.
At 30 September 2014, the company had a cash resource of US$11.8 million. As a producer, the company is not required to lodge forward cash costs estimates for the current quarter. We consider the company has sufficient liquidity to meet all its current commitments. We note the company has also reported that funding of US$60 million is available for drawdown, with US$20 million immediately available. The company is now fully funded to continue the rollout its well programme at the current rate of four new wells per month.
Plans are in train to lift new well rollouts to six per month.
Until the new debt facility is drawn-on, the company will remain debt free.
Attributable revenue for the September quarter net of taxes and royalties was US$5.5 million. Capital investments totalled US$9.7 million with a focus on development activities and land acquisitions. With the natural gas collection infrastructure primarily rolled out, capital expenditure should ease.
We note the company will change its reporting currency to US Dollars, as both revenue and operating expenses are US Dollar denominated.
AusTex Oil is a junior energy producer and developer, holding blocks in the pedigree oil and gas play of the Mississippi Lime region of Oklahoma. With a future production profile that supports growth, we continue to be very encouraged by the results of the company’s Snake River development programme. We believe the continued re-rating of the stock will be a key factor in lifting the value of the company going forward.
We believe AusTex Oil will continue to de-risking further in the months and years ahead; as its production profile grows. We premise our belief on the delivery of higher oil and gas production numbers, as the company successfully rolls out wells across its Snake River blocks.
As a consequence of our belief, we reiterate our buy recommendation for AusTex Oil for Members with no exposure to the stock.
