Australis nears sharp end of payday pursuitSean SmithThe West Australian Wednesday, 11 July 2018 8:23PM
Australis Oil & Gas is nearing the sharp end of its founders’ pursuit of another big payday.
The WA-based company, which is following a path beaten by takeover success Aurora Oil & Gas, will soon begin drilling the first of up to 10 wells in a potential $US100 million ($135 million) drilling program aimed at establishing the production bona fides of its promising shale play in the southern US.
“For us, this is the next step in the strategy we laid out in detail 31/2 years ago,” Australis managing director Ian Lusted said.
“At this point in time, everything is coming together as we broadly mapped out.”
If the drilling over its dominant acreage position in the Tuscaloosa Marine Shale region straddling Mississippi and Louisiana delivers by confirming strong production rates recorded in 2014, Australis believes it will have an attractive acreage package ready-made for sale.
“We don’t need to be the biggest Australian-based US producer, that’s not the aim here,” Mr Lusted says. “The aim here is to generate shareholder value; that may mean a total exit, that may mean a partial exit.”
It is the second time round for the Australis team, which is headed by Mr Lusted, chairman Jon Stewart and chief financial officer Graham Dowland.
The group pursued a similar counter-cyclical strategy in building Aurora, accumulating promising but undervalued acreage able to be developed or sold into rising oil prices.
Aurora, an early player in the Eagle Ford shale play in Texas, delivered windfall profits for its backers when it was bought by Canadian group Baytex Energy for $1.8 billion in 2014.
“The Aurora story is what oil and gas people live for,” Mr Lusted said. “And when it became clear that if we were smart and clever we could potentially do it all again, that was something that appealed to everyone.
“Aurora was a certain set of circumstances which we took full advantage of. We’re not promising to repeat the returns we achieved at Aurora, but this is an opportunity to go and do it again and our intention is to make the most of that opportunity.”
Australis is already bigger than Aurora, with about 35,000ha covering what the company describes as the productive “core” of the TMS and proved and probable reserves of 47 million barrels of oil and a contingent resource estimated at a further 98 million barrels.
“Our belief here is that we have generated something of significant strategic value in the US,” Mr Lusted said.
The TMS has been held back by a reputation in some quarters for variable productivity.
However, the last wells drilled by US group Encana Corp in 2014, significantly in the TMS’ “core” area, returned much better and consistent results.
Australis is looking to at least replicate those results in its drilling. In any event, it argues the TMS “core” is already highly profitable at current oil prices.
“Our expectation is that we drill these wells, we demonstrate this underlying value and at that point, we start of process of realising shareholder value,” Mr Lusted said.
Producing oil wells included in a $US80 million purchase of TMS acreage from Encana last year covers Australis’ overheads. It has $US45 million in the bank after an equity raising at 34¢ in March and last month finalised a $US75 million credit facility with Macquarie Bank.
Yesterday, its shares hit a record high of 48.5¢ before closing half a cent lower at 47.5¢.