Austin Exploration Ltd (AKK) AKK has announced its high impact four well Eagle Ford drilling campaign has commenced which has the potential to significantly re-rate the company to a material producer. Given the recent share price weakness and the material leverage AKK provides to a fully funded four well Eagle Ford program, we believe now is the time to BUY. We therefore maintain our Speculative Buy recommendation and price target of 2.5c/sh. Key Points: • First Halcon Resources well in AKK's Eagle Ford project spudded. AKK has announced its high impact four well drilling campaign in its Eagle Ford project has commenced with the spudding of the Stifflemire #1H well. Based on recent drilling performance, we believe a result should be realised by end January 2014 which has the potential to significantly re-rate the company to a material producer. • Fully carried on US$40m well program. AKK will be free-carried on the drilling costs of the three-well program with Halcon, and on one well with PetroMax. The total cost of each well is expected to be US$8-10 million bringing the total cost of the four-well Texas farm-out program to US$32-40 million (8,000' to 10,000' laterals). This ensures material value could be added to AKK at no cost highlighting the leverage AKK provides in the near term. • Two Eagle Ford wells could be drilled by end 1Q CY2014. Including the Stifflemire #1H well, we expect two Eagle Ford wells to be drilled and potentially on production (based on success) by end 1Q CY2014. At the completion of the three well program, PetroMax is expected to commence the drilling of its well highlighting a very active 1 H CY2014 for AKK. • Halcon's proven operational capability de-risks drilling program. We believe Halcon's proven operational capability in the Eagle Ford oil window reduces the execution risks of the current three well program. However, the key uncertainties which must be delineated include the deliverability/flow rate and the liquids (oil and condensate) to gas ratio. Halcon is currently operating three rigs in the area and has brought 19 wells onto production during the September quarter resulting in a 204% increase in net production qoq to 6,500boepd. In addition, Halcon reported a record Initial Production (IP) rate was delivered in the September quarter of 1,262boepd from the Stasny-Honza 1 H step-out well in Brazos County. • Fourth Mississippi well to be spud in the next four weeks. The Bourke#5 well in Mississippi is due to spud within the next four weeks which is an offset well to the Bourke#4 well which delivered an IP of 248bopd and has produced 15,000 barrels of oil. AKK has a 50% interest in the well which is estimated to cost $0.7m ($0.35m net to AKK). • Near term catalysts. The key near terms catalysts are: 1) Stifflemire #1 H well result (Jan 2014), 2) Spud of Bourke#5 well (Jan 2014) and 3) Drilling of three additional Eagle Ford wells (I H 2014).
AKK Price at posting:
1.2¢ Sentiment: Hold Disclosure: Held
