Australis Oil and Gas halts trade for drilling program
Sean Smith | The West Australian Sunday, 18 March 2018 10:01PM
Australis Oil & Gas has gone into a trading halt to raise up to $40 million via a placement to help fund a proposed $US100 million drilling program over its emerging shale play in the south-east US.
The Perth-based company gave away little in its announcement.
However, it told investors in a presentation last week that it would consider raising new equity as part of a funding package for the drilling program, which is expected to see up to 10 wells sunk over its Tuscaloosa Marine Shale properties in the second half of the year.
It is believed that debt will account for most of the funding for the drilling.
Australis is one of the biggest landholders in the TMS, which straddles Louisiana and Mississippi, after paying $US80 million for a swathe of holdings early last year.
The Ocean Monarch has left beachgoers guessing about where it came from and where it's going.
The company already produces small amount of oil — about 4 million barrels a year — from the region but the new drilling would enable it access more of the estimated 145 million barrels of recoverable oil sitting under its tenements.
While Australis and its advisers from Euroz have to yet to finalise the quantum or the price of the equity raising, it is believed the company will issue up to the allowable 15 per cent of its issued capital.
Shares in Australis last traded at 36¢, valuing the group at $280 million.
Run by the management team behind Aurora Oil & Gas, which was bought by Canada’s Baytex Energy for $1.8 billion in 2014, the company has taken a long-term cyclical view, accumulating properties in the TMS that can be developed and sold on the back of stronger oil prices.
Australis is chaired by former Aurora chief Jon Stewart, with Ian Lusted as managing director and Graham Dowland as finance director.
Its shareholders including many Aurora investors who are betting the management team can repeat their success with Australis.
Recent Australis investor presentation citing $85 WTI as oil price basis for their TMS play. With oil recently dropping, their economics are taking a big hit already.
I haven't seen info on their anticipated "realized" prices for O&G & NGL's for the TMS - right now, all these adjustments are huge on the bottom line of this operation.
$65 or lower oil could kill this play economically. Using their average of 610 MBO per well EUR, a $20 per BO price hit reduces their undiscounted cash flow by over $9 Million.
Australis TMS Drilling Report Update (see attached PDF).
Looks like some problems getting second horizontal to permitted TD.
Although I do like to be optimistic for the most part, the historical realism of the TMS play as to drilling problems and well costs is impossible to ignore. Australis had a ton of info in their present area in their tool box and confidently predicted drilling success - and now have problems on their second well by only being able to get about 2000' of treatable lateral.
The "problem" wildcard plus low $50 oil is a very bad combination for this play - and for the private equity investors backing Australis on this.
I am wishing Australis the best but ...............................................
Australis Oil & Gas targets profitable exit of 'desirable' shale play
afr.com by Angela Macdonald-Smith
There is no pretence: Australis Oil & Gas chief executive Ian Lusted isn't interested in growing a successful Aussie-owned US shale oil producer.
Rather the goal is to put together a desirable package of mostly undeveloped shale oil assets with proven economics that can be sold off or joint ventured for a lucrative return.
Mr Lusted and his senior team have runs on the board, having led Aurora Oil & Gas along a similar journey to a $2.6 billion sale, including debt, in mid-2014, just before the crude price crashed.
Just over four years later they are potentially closing in on what they hope will be another big windfall.
Our plan is to generate value for shareholders just as we did with Aurora," Mr Lusted said.
"That ultimately means an exit. It might be a sale, it might be a farm-down, it might be bringing in a bigger partner, but we are deliberately constructing a package that we think in a US context will be highly desirable."
The land package is in place: 110,000 acres in the top-quality, oil-rich part of the vast and otherwise mediocre Tuscaloosa Marine Shale (TMS) on the border between Louisiana and Mississippi. An $US80 million acquisition from Encana Corporation early last year forms the core of the acreage and came with valuable technical data on how to optimise production and economics.
Now the team – including chairman Jon Stewart, finance director Graham Dowland and chief operating officer Michael Verm – has embarked on the next critical stage, the drilling of 10 wells in the hotdog-shaped core area to demonstrate the underlying economics of an inventory of 410 future well locations.
With an estimated 172 million barrels of recoverable oil, existing production worth $US100 million and an enterprise value of $US200 million, "there's plenty of scope for us to generate shareholder value from where we sit today," Mr Lusted said.
"That is a meaningful amount of oil for any small or mid-cap US independent company."
The recent slide in the oil price will impact the timing of a potential sale, Mr Lusted acknowledged, while pointing out that the whole strategy around Australis assumes that crude oil prices will need to be in the $US60-$US70 a barrel range to support investment to meet demand.
The oil price drop has also inevitably impacted Australis's share price, which closed on Thursday at 29.5¢, down from more than 50¢ in early August.
A drilling hiccup reported this week has also hit the stock price, although RBC Capital Markets analyst Ben Wilson told clients he regarded the problem as "localised" and put a price target of $1.10 on the shares.
"We believe the [Australis] strategy of buying barrels in the ground and demonstrating deliverability gives investors confidence in the clarity and singularity of the strategy," Mr Wilson said. RBC helped manage a $39 million share placement by Australis in March.
Still, the economics of the TMS play benefit from a sales price for the oil based on Louisiana light sweet crude, with little or no deductions for transportation costs. That adds up to a premium of $US8-$US10 a barrel to the benchmark WTI price, compared to as much as $US15 a barrel below WTI for Permian crude.
It all points in favour of the "final step" in the strategy for Australis, which has $US40 million in cash, no debt and covers its overheads from its modest production, keeping most of its oil in the ground.
Still, Australis will have to overcome the overall poor reputation of the TMS, the reason the company was able initially to pick up acreage cheaply: Mr Lusted said it would have cost the company "tens of thousands of dollars" an acre to get into the popular Permian basin instead of the $US150 an acre of its leases in the TMS. Yet the wells have performed better than Permian wells at the same stage of industry development.
Australis expects to start releasing the production results from the first two wells in its 10-well program in the March quarter of 2019, with further results coming every two months.
"The corporate strategy here isn't really around the first 10 wells – it's around the next 400," Mr Lusted said.
"We're trying to lift the value attributable to the play as a whole as opposed to simply attributable value to the wells that we're drilling."