Australian oil producer in US patch sidelined   30 April 2020    Paul Hunt  Senior Journalist: Oil & Gas, Policy


AUSTRALIS Oil & Gas has spared no effort to ride out the oil price crash which has hit the US shale market particularly hard.

Australis' main asset is the US shale patch, where it holds swathes of onshore acreage in the Tuscaloosa Marine Shale across Louisiana and Mississippi. 

So it was little wonder the company's share price tanked from highs of 9.5 cents before the oil price crash, to lows of 0.7c by the end of the first quarter. 

That's a 1357% fall one quarter alone. 

Its price was hit last week when US onshore benchmark West Texas Intermediate went into unprecedented negative territory, but has recovered slightly. 

Over the past month West Texas crude fell from the teens into negative territory, at one stage as low as minus -$38/bbl. It has since recovered to the mid-teens and was trading at $17/bbl at 1.30 this afternoon.  

In its latest quarterly the company showed how swiftly it had acted since the market crashed, significantly reducing its debt position, restructuring facilities and making deep cuts to capital expenditure. 

Early this month the company paid off US$10 million worth of debt, leaving it with a debt balance of US$23 million. It currently has around US$4 million cash on hand. 

Australis cut costs wherever it could, operational expenditure was slashed as was discretionary capital expenditure. 

While the company has not given an exact figure on the total cash spending cut, it did say the cost of production per barrel had been cut from $13/bbl to below $9/bbl. 

Management acted quickly to terminate an undrawn facility worth US$40 million and eliminate associated fees. 

As expected, oil sales volumes cratered amid an oversupplied market, with gross sales volumes for the first quarter just 170,000 barrels of oil - about 40,000 barrels lower than analysts had expected.  

Over the three months, Australis sold its oil at an average of US$49/bbl, about $3/bbl higher than RBC Capital Markets analyst Ben Wilson anticipated. 

He said RBC's fundamental view was the company's challenges were "not bound by its operations but rather extend to the broader US shale patch where a dearth of available storage capacity has driven down realised pricing." 

While current oil production is still providing some cash flow, largely due to the company's short-term hedging position, funding for any forward program would be "increasingly challenging" and would probably require a farm-down of assets.

"The introduction of a partner to the basin potentially would provide some external validation of Australis' positive take on the prospectivity of the Tuscaloosa Marine Shale acreage," Wilson said. 

"We do think the basin has longer-term strategic merit to a major looking to slide a new, discrete contiguous play into a much larger portfolio… near term however, oil pricing will remain key." 

RBC has revised its outlook for the company to "Sector Perform".


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Replies to This Discussion

This author is taking an overall pretty positive viewpoint on the Australis TMS effort.

Personally, I think the Australis effort was heading to "dead duck" status even before the recent price crash. Their continued inability to successfully drill and complete TMS laterals for the entire permitted lengths is extremely disappointing. I believe that they only have 1 or 2 of their new wells where they have done what they planned out to do.

Their presentation approach of normalizing shorter laterals is highly misleading - basically a good spin on the data.

Despite having a ton of historical data and bringing the best that they could to this play, the same drilling and completion problems that have plagued the TMS have continued with their new drilling.

I had high hopes for their efforts - looking like they are going up in smoke!

Just my opinion as always!

TMS continues to look like one of those plays that will taunt O&G drillers for years - the O&G is there / but how in the heck can they get it out economically???????????????

Attached is Australis' latest Press Release 


Thanks for the press release.  Yes, the article seeks to put a positive spin on an untenable situation.  Here is what caught my attention and made me doubt the overall metrics used to underpin the article:

While the company has not given an exact figure on the total cash spending cut, it did say the cost of production per barrel had been cut from $13/bbl to below $9/bbl.

That is an interesting number and good catch as to "what the ????? in going on here?"

This could be something a simple as Australis changing what is being charged to the wells as to producing costs - e.g. dropping "office support" like HSE and other back room services that some companies bill through to their production".

Is this layoffs and lower G&A? Who knows. More spin by Australis.

I hope they are doing better on their Portugal assets!

I haven't thought about or checked on the Portugal assets.  I have to believe that nothing in their portfolio is positive at a seven tenths of a cent share price.  The price per share that it "tanked from" was a robust 9.5 cents.  Reminds me of Mainland Resources Inc.  Mississippi can't catch a break.

Curious, is that price of shares in US dollars or Australian dollars?  It could be even worse than it sounds now.  BTW I note CHK is seeking a bridge loan to get through bankruptcy.  I doubt anyone will loan them any money.  I think they are toast burnt to a crisp.

Pretty sure it is Australian exchange.

CHK also installed some sort of "Poison Pill" last week to help stave off bankruptcy (don't ask me how that works - I am just a dumb Geo)


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