Australian Equity Research on AusTex Oil Limited (ASX:AOK) By Hanuman Private Wealth
Sydney, Aug 31, 2010 AEST (ABN Newswire) - AusTex Oil Limited (
ASX:AOK) is an Australian based company engaged in the exploration and development of oil leases in Oklahoma and Kansas in the US. Low risk development of the Lancaster and Sweet Leases in Oklahoma provide the company with a solid production base; while the Cooper project in Kansas is an early stage discovery that could provide substantial upside. The yet to be completed Tonkawa East acquisition in Oklahoma, also promises substantial upside through the application of new horizontal well technology. With operational cashflows strengthening and attractive large scale but relatively low risk targets we believe AOK is a low-risk oil junior with a clear growth path (aspirational target of 1,000 BOEPD), company changing exploration and operating in an attractive region. We rate AOK as a Spec Buy with a 33c price target.
Significant Events Since Last Report
Accelerated development of the Lancaster Lease has seen the number of producing wells increase to 10, with 2 injectors and another 2 under completion as at end July. AOK are targeting 15 wells by the end of September and full development by the end of the next fiscal year which should stabilize production at 20-30 BOEPD per well.
In Kansas, Clarke # 1 is producing, Clarke # 5 intersected oil but mechanical problems have delayed completion and production and Clarke # 7 is ready to go.
Letter of Intent to acquire Tonkawa East project, nearby wells producing 300-500 BOEPD.
June quarter cashflow report showed 100% revenue growth to $1.3m.
Kansas - Exploration Delivering
AOK received permission to dispose of water from Clarke # 1 and has been producing from the Lansing-Kansas Formation (photos below show Clarke pump and tank battery). Although Clarke # 1 intersected two producing formations, the Lansing-Kansas City (with initial production at 230 BOEPD ) and the Toronto Formation (with initial production at 250 BOEPD), production is currently only from the Lansing-Kansas City Formation as there were issues with water compatibility between the formations.
Clarke # 5 has also intersected oil and should be brought into production shortly. Clarke # 7 is ready for drilling. AOK plans to drill one Clarke well per quarter.
Being a virgin discovery, the Kansas project is at early stages with the company still working to define the structures. Although AOK will produce from these wells, the optimal production rate will not be achieved for some time.
AOK's Kansas projects are in JV with the company Castle Resources (CVE:CRI), which is the operator. AOK holds a 53% working interest and a 43% net revenue interest.
The Kansas project is exciting for AOK as much of it is virgin territory and the flow rates tend to be higher than its Oklahoma wells. AOK has identified 20+ targets on the Cooper Lease following the structure. It would not take a high success rate to have a substantial impact on valuation.
Oklahoma - Low Risk Development Play
AOK anticipates achieving 18 wells at Lancaster during the December quarter; however some work will be diverted to the new acquisition, once completed. Although ten wells are producing now, the optimal rates won't be achieved until the lease is fully developed including water injectors to maintain pressure. AOK is targeting average well production of 20-30 BOEPD, which would give >300 BOEPD assuming some wells are injectors. Once fully developed with water injectors, the wells should be relatively long life 15-20 years with production decline of around 10%, similar to other Red Fork formation producers.
After Lancaster, AOK will start developing Sweet Lease, which is a similar low risk reworking to Lancaster.
Tonkawa East
Tonkawa East is an exciting new type of project that is looking to access known reservoirs with new technology that can improve the economics. AOK is following the model pioneered by NYSE listed Range Resources (NYSE:RRC) which is achieving production of 300-500 BOEPD through horizontal well technology. AOK will look to re-work existing wells but the key upside is horizontal well technology that increases yield from vertically fractured formations.
The Tonkawa East deal is yet to complete and as yet AOK hasn't disclosed the cost or conditions. However, AOK has stated it would have an NRI of 81.25% and expects the deal completed by the end of September.
AOK may consider drilling a vertical well before the end of the year to enhance the science, given the success of neighboring plays. This project will be three-pronged with reworks, recompletions and new drilling while seeking to obtain other acreage in the area.
For the complete Research Report on AusTex Oil by Hanuman Private Wealth, please refer to the following link below:
http://www.abnnewswire.net/media/en/docs/63625-ASX-AOK-AnalystReport-Hanuman.pdf
About AusTex Oil Limited
AusTex Oil Limited (ASX:AOK) (OTCQX:ATXDY) is a Public Company listed on the Australian Securities Exchange (ASX) and the OTCQX.
AusTex is focused on exploration and development of oil and gas leases in the USA. The company produces oil and gas in Oklahoma and Kansas and is currently developing producing leases in both states with interests in 11,600 net acres of oil and gas leases in the Mississippi Lime Play. The Company has net production of circa 800 boe/day with Independent 1P reserves certified at 3.505 Million BOE with NPV10 of US34.8 million as at 31 December 2015.
US operations are based in Tulsa, Oklahoma, with an office at 1801 East 71st Street. International Energy Corporation (Oklahoma) is a wholly owned subsidiary and a licensed oil and gas operator in Oklahoma and Kansas.
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