Aurora Oil & Gas Limited (ticker: AEF, AUT) is a Perth- and Houston-based oil and liquids company with operations solely in the Eagle Ford Shale trend of South Texas. At year-end 2012, the company exited the year producing approximately 13,850 net BOEPD. The company has 79,700 gross (21,800 net) acres in the “tri-county” area of Karnes, Live Oak and Atascosa Counties, Texas. Marathon Oil (ticker: MRO) historically has been the company’s largest and only operator. While the AEF/AUT ticker may be under the radar for many U.S. investors, the company has well data on 252 gross (58 net) non-operated producing Eagle Ford wells as of the end of Q1’13. An update on Q1’13 operations was made on April 29, 2013.
Aurora Oil & Gas by the Numbers
As of April 26, 2013, Aurora was trading at an enterprise value to 2012 proved reserves, enterprise value to trailing twelve months production, and enterprise value to its net acreage of $18.42 per proved BOE, $220,878 per flowing BOEPD, and $80,550 per net Eagle Ford acre, respectively. The median from EnerCom’s Small Cap U.S. E&P peer group made up of 25 companies is $16.56 per proved BOE and $88,500 per flowing BOEPD.
Reserves: While Aurora’s reserves multiple is only incrementally higher than the Small Cap peer group, it is still trading at a premium the group. Over the last three years, Aurora has proven its ability to add reserves while increasing production. Aurora’s three-year production replacement is 1,954% compared to the Small Cap median of 394%.
Production: Companies that demand a higher than average production multiple, like Aurora, should show a preponderance of growth catalysts in the near-future. An aggressive drilling program in an economic basin should be in place. Aurora plans to double production during 2013 by drilling 50 net wells to average between 14,500 to 16,200 net BOEPD versus its 2012 average of 7,900 BOEPD.
At the end of Q1’13, Aurora had 58 net wells producing 13,760 net BOEPD in the tri-county area (not including the recent transaction). Eight of those 58 net producing wells were put on production during Q1’13. In addition, approximately 8.9 net wells were spud during Q1’13 as part of the company’s 45 to 50 net well 2013 program. Aurora expects to exit 2013 in excess of 18,000 net BOEPD.
Other companies with premium multiples include: BCEI, COG, GPOR, HK, OAS, RRC, SN and SYRG. Each of these companies have aggressive near-term growth profiles in prolific basins, including the Marcellus, Bakken, Eagle Ford, Utica, and the Wattenberg Field.
Acreage: If the production and reserves information above does not support the $80,550 per net Eagle Ford acre valuation, a few more facts to consider.
- Aurora’s trailing twelve months cash margin is $48.48 per BOE compared to the Small Cap median of $23.52 per BOE.
- More than 90% of their acreage position is held by production.
- In 2011, AEF only had 11.5 net wells on production. In 2012, they only had 50 total net wells on production. In 2013, they will have approximately 100 net wells on production.
- The company’s production stream is oil-weighted: the Q1’13 production stream averaged 34% oil, 30% condensate, 16% NGLs and 20% natural gas.
- Aurora reported $93 million (after royalties) of oil and gas revenues during Q1’13, a 14% increase over Q4’12. Approximately 87% of the revenue was from oil and condensate.
To be fair and balanced, we do believe the street is concerned with the running room in the play. Assuming 80-acre spacing across the entire position, AEF has approximately 272.5 net well locations. This would imply that after year-end 2013 the company could drill its acreage at the 50 net well pace for a little over three years. That said, the company is actively exploring other productive zones across its acreage position that could support future growth.
Final Thoughts on Aurora Oil & Gas
On February 28, 2013, Aurora made its first foray into operated acreage by purchasing 100% working interest in 2,700 net HBP acres for $117.5 million. Average December 2012 production was 1,620 BOEPD net (70% oil) from 11 wells (not included in the total number of producing wells above) representing a transaction value of $72,531 per flowing BOEPD. We note however, this transaction closed late March 2013 so no production volumes were used in the reported Q1’13 production levels.
While a formal strategic announcement has not been made to say whether or not Aurora will continue to transition to an operated model, adding incremental operated acreage provides Aurora the opportunity to increase its drilling inventory, control its development pace, diversify its capital spending, increase its working interests and more accurately predicts its cash flows. Aurora will develop this recently purchased acreage on 40 acre spacing.
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