Aurora Oil & Gas Limited (tickers: AEF and AUT) is a Perth- and Houston-based oil and liquids company with operations in the Eagle Ford Shale trend of South Texas. Aurora has 88,800 gross (22,000 net) acres in the “tri-county” area of Karnes, Live Oak and Atascosa Counties, Texas.
Recent Financial Results
On November 8, 2013, the company reported Q3’13 net income of $24.7 million, or $0.05 per share. Not only was Aurora one of 380 out of 1,393 E&P companies that reported positive net income during Q3’13, but the company grew net income 54% from the same quarter last year.
Revenue during the quarter totaled $144 million, a 7% increase from Q2’13 and a 68% increase from the comparable quarter a year ago. Net to Aurora, after royalties, production volumes were 1.45 MMBOE, representing an increase of 6% from Q2’13 and 71% from the comparable quarter a year ago. Aurora averaged 15,800 BOEPD during the quarter (up 6% from Q2’13) above its updated total 2013 average production guidance range of 15,000 to 15,600 BOEPD. At the end of Q3’13, the company had 332 total gross wells producing.
After participating in more than 250 gross non-operated wells with Marathon Oil (ticker: MRO), in February 2013, Aurora made its first foray into operatorship by purchasing a 100% working interest in 2,700 net HBP acres for $117.5 million in the tri-county area.
We believe the street is growing confidence in Aurora’s operating abilities since two wells were drilled and placed on production during Q3’13 on the company’s Heard Ranch area. These two wells, which were pad drilled and cased at lateral lengths of 7,800 feet to 7,900 feet, posted a 30 day average rate of 821 BOEPD per well. Aurora subsequently moved the rig to a nearby pad and has spudded a three well pad program which is expected to be drilled and completed before year end.
At Axle Tree Ranch, the company’s other operated area, the Julie Beck #12H and #13H wells were drilled and multi-stage zipper fraced. After quarter end these two wells were placed on production.
Doug Brooks, CEO of Aurora, said on the company’s conference call, “Not only did we drill the [operated] wells safely in their projected budget, our timing was accurate for first production, even though we altered our well designs to longer laterals…”
The company reinforced its well cost goals on the conference call as well. Michael Verm, COO said: “As a benchmark, the AFEs we have received in the third quarter have averaged $7.8 million for horizontal wells with an average length of 5,400 feet.”
However, keep in mind AEF’s operated acreage is mostly longer laterals.
Verm continued on the call: “Going forward, our next three long lateral wells in Heard Ranch, of which two have already been drilled and cased are expected to cost an average of approximately $9.4 million for 7,800 foot laterals and 30 stages. These cost estimates are almost exactly the same as our non-operated AFEs for similar-length wells.”
CAPEX and Guidance Updated
Comparing the mid-point of Aurora’s initial and updated CAPEX guidance and the mid-point of its initial and updated production guidance, we see the company is expected to produce the same with a 12% increase in spending. This could be misconstrued – to put it simply – the increase represents an acceleration of what the company would have spent in 2014 on its operated and non-operated properties. With the predominate amount of CAPEX weighted to Q3 and Q4, many wells will be drilled during Q4,’13 but not necessarily placed on production this year. With the increased activity across both its operated and non-operated footprints, the company is investing additional capital into infrastructure as well. Finally, OAG360 notes that Aurora initially planned to drill 14 to 19 net operated wells on 40 acre spacing during 2013. However, they are now drilling longer laterals which is expected to result in more total gross lateral footage drilled with only 10 to 12 net wells.
Final Thoughts – Well Density and Evaluating Other Zones
The optimal full scale development of the Eagle Ford and other zones has been a hot topic. Across its non-operated program with MRO (19,400 net acres), more than 30% of the wells drilled to date have been on less than 80 acre spacing. Aurora and MRO continue to test 60 and 40 acre Eagle Ford spacing from multiple pilot programs, 60 acre Austin Chalk pilots, as well as optimal wellbore orientation, fracture stimulation techniques, and production optimization techniques. MRO will host an analyst day in early December to detail its initial findings. We believe the MRO analyst day will provide the first glimpse into the full extent and resource potential in the Eagle Ford.
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