An Independent Evaluation of Austex Oil Limited

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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 currenlty developing producing leases in both states with interests in ~ 23,000 net acres of oil and gas leases in the Mississippi Lime Play. The Company has net production of ~600 boe/day net and Independent 2P Reserves certified at 12 Million BOE with a NPV10 of $US285 million as at June 2013. Note: This photo is not an Austex well and is illustrative purpose only. Oil well, gas tanks, and natural gas flare in Arnegard North Dakota by Tim Evanson. Flickr Creative Commons Attribution-ShareAlike 2.0 Generic

by Hugh Pickens

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 currenlty developing producing leases in both states with interests in ~ 23,000 net acres of oil and gas leases in the Mississippi Lime Play. The Company has net production of ~600 boe/day net and Independent 2P Reserves certified at 12 Million BOE with a NPV10 of $US285 million as at June 2013.[1]

The purpose of this web site is to document the company's plans and policies to help make a determination of it potential as an investment.

Contents

Introduction

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 currenlty developing producing leases in both states with interests in ~ 23,000 net acres of oil and gas leases in the Mississippi Lime Play. The Company has net production of ~600 boe/day net and Independent 2P Reserves certified at 12 Million BOE with a NPV10 of $US285 million as at June 2013.[2]

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.[3]

AusTex holds approximately 5,500 acres (100% WI 81/% NRI) of the Snake River Project in Kay County, Oklahoma in the Mississippi Lime adjacent to leases operated by Range Resources Corporation (NYSE RRC). The company continues to lease acreage in both Kansas and Oklahoma and plans to increase oil production in the short term through its drilling activities. Development drilling is underway on the project with 6 wells a quarter being drilled with AusTex as the Operator. AusTex remains focused on this project to drive production growth and is negotiating with lenders to put in place a credit facility to expedite development over the coming months. At 20 acre spacing on vertical wells there are over 200 locations to be drilled on this project.[4]

Corporate

AusTex Oil Limited is a public company founded in March 2006 that is listed on the Australian Securities Exchange (ASX) and the Toronto Venture Exchange (TSXV). The company currently holds interests in ~26,000 net acres in Oklahoma and Kansas with a net oil and gas produciton of ~600 boe/day as at June 2013 and 12 Million boe 2P Reserves. Sales Revenue for the financial year ended 31 December 2012 was $6.6 million.[5]

There are 432.9 million shares on issue at a nominal market value of 14 cents per share for a market capitalization of $60 million.[6]

News and Views on Red Fork Energy

October 21, 2013: Austex Looking to Raise $17.5-million to Fast-Track Snake River Project

Mining Weekly reports that AusTex Oil is looking to raise $17.5-million to fast-track the development of its Snake River project, in Oklahoma by issuing up to 116.6-million preference shares over two tranches, to US investors. The first tranche would comprise 43.3-million redeemable convertible preference shares, while the second tranche would consist up to 73.3-million shares. Each share would have a subscription price of 15 cents a share. “The company has historically been able to sustainably fund steady growth with a commensurably moderate level of drilling. Ptolemy’s conviction in and financial support of our opportunity and our team will result in a fast-paced growth programme that should deliver improved financial and production performance,” said AusTex executive chairperson Richard Adrey.[7]

September 18, 2013: Austex Sets Monthy Production Record of 26,815 BOE for August

4-traders reported on September 18, 2013 that AusTex reported a record monthly production of 26,815 BOE for August, 2013, a 17% increase on prior month's production with same number of wells. Austex currently has 6 additional vertical wells awaiting tie-in and the Snake River project is still largely undeveloped with over 200 potential wells identified.[8]

August 7, 2013: Austex Spuds Development Well Fath-28-2

Upstream reported on August 7, 2013 that Austex spudded development well Fath-28-2 that will be drilled to a total depth of 4750 feet and will target the Mississippian and Woodford shale. The well is a step-out well to the north of the successful Fath-28-1 which was drilled during the second quarter of the year.[9]

August 7, 2013: Austex to Constrcut New Surface Infrastructure

Upstream reported on August 7, 2013 that Austex has new surface infrastructure – including oil storage facilities, electric service, gas handling, and water disposal and retention – under construction to meet growing output from the Snake River project. “As oil and gas production increases at the Snake River project, additional infrastructure is required,” says AusTex executive chairman Richard Adrey. “As we continue to extend our development area and drilling plan, we are actively developing new infrastructure works in unison with the midstream pipeline company and utility provider.”[10]

July 18, 2013: AusTex Oil production rises 28% for Q2, 2013

Proactive Investors reported on July 18, 2013 that Austex has recorded an average daily hydrocarbon production of 602 barrels of oil equivalent for the second quarter, up from the 470boe per day in the first quarter as it continued to drill new vertical wells in the U.S. AusTex reported revenue of US$3.4 million for the second quarter, up 21% from the US$2.6 million it made in the first quarter.[11]

July 2, 2013: AusTex reports solid production of 17,360 BOE for May

Austex reported on July 2, 2013 on net oil and gas production in the month of May of 17,360 Barrels of Oil Equivalent (BOE), with an average of 560 boe/day consisting of 70% oil. A peak rate of 750 boe/day was also reached in May reflecting the strong operational performance of the company's vertical wells.[12]

AOK successfully drilled two new vertical wells and fracced two additional wells during the month. The Company now has sixteen wells in production, three wells in production testing, and a further six wells under completion at the Snake River Mississippian Project in Northern Oklahoma.[13]

AusTex Executive Chairman Mr. Richard Adrey commented: 'We are very encouraged by May's production which we delivered whilst undertaking a very active infrastructure development program at Snake River which facilitates future production growth.[14]

July 2, 2013: Verticals Could Be Key To Mississippi Lime Development

Branden Holt wrote at Seeking Alpha on July 2, 2013 that it's now possible to drill a vertical well into a targeted zone and fracture the rock similar to a horizontal and that this is an effective way to delineate acreage in formations that are characterized by multiple producing strata with "trapped" hydrocarbons like the Mississippian Lime, versus a resource play like the Bakken. Austex is taking this approach to the Lime drilling new vertical wells with new technology to find oil and once a high producing area is found, clusters of verticals can be drilled at 20 to 40 acre spacing. According to results from vertical wells drilled in Township 25 North, Range 1 East, Section 20, Austex's vertical wells are not only consistent but they're also nearly paying for themselves in six-months. "While it's not prudent to make decisions based on a few solid well results," writes Holt, "I believe the geological characteristics of the Lime make vertical wells (at least initially), the best method to develop the play."[15]

June 18, 2013: Austex Reports Drilling Success in Kansas

Austex reported on June 18, 2013 that Castle Resources Inc., as operator, reports that the Sieker #1 at the 3,200 acre Ellsworth Project has successfully reachedTD of3,380 feet. Samples and logs indicate commercial oil quantities in the Lansing Kansas City and Arbuckle formations. Currently AOK has a 50% WI in four other wells in the Ellsworth Project which were drilled in the last two years. AusTex’s Executive Chairman Richard Adrey commented: “We are satisfied with the indicative results of the Sieker #1. Our projects in Kansas have significant unlocked value and we are in the process of realising some of this value with the current program.[16]

May 22, 2013: AusTex Oil Limited to List on the TSX Venture Exchange

Austex announced on May 22, 2013 that the Corporation's ordinary shares will be listed and posted for trading on the TSX Venture Exchange ("TSXV") at the opening of trading on May 22, 2013 under the symbol ATO. Commenting on the pending listing on the TSX Venture Exchange, Executive Chairman Richard Adrey commented: “The level of investor interest in Canada and North America for companies with exposure to the resurgent US oil and gas industry is significant. A TSX-V listing gives these investors a mechanism to invest in AusTex in a convenient time zone and through an exchange in North America that has the capacity to deliver the necessary liquidity.[17]

August 6, 2012: Red Fork Energy to Pipeline and Truck Mississippi Lime Crude to Ponca City Refinery

The Oil and Gas Journal reported on August 6, 2012 that Red Fork Energy Ltd. has agreed to sell the Mississippi Lime Crude from its 75,000 net acres east of the Nemaha ridge in five Oklahoma counties to a subsidiary of Phillips 66. The oil will be pipelined or trucked to the Ponca City Refinery. Red Fork Energy just completed the McMurtry 1-21H well in Noble County, OK, in which it has 62.2% working interest, at a peak rate of 494 b/d of 38° gravity oil and 1.3 MMcfd of high-BTU gas. The well’s 23-day average was 470 boe/d.[18] Red Fork has drilled nine horizontal Mississippian wells with four completed for production, three awaiting completion and two currently drilling. The company's McMurtry 1-21H well in Development Area 2, Oklahoma, continues to be a winner for the company with production averaging about 470 barrels of oil equivalent per day. The well has been producing uninterrupted since testing commenced and has been transferred to the company's production monitoring team for permanent production. Further production from the Mississippi Lime play is just waiting on completion works to be carried out on the McMurtry 1-22H, Bunch 1-19H and State 1-13H wells.[19]

August 2, 2012: Phillips to Run More Mississippi Lime Shale Crude through the Ponca City Refinery

Mississippi Lime Oil Producing Formations around Ponca City are shown in brown. Mississippi Lime - porous limestone formations in northern Oklahoma and southern Kansas has been yielding reservoirs to horizontal operators such as SandRidge, Chesapeake, Devon and Tulsa-based Eagle Energy LLC during the past two years. The "new" reserves actually lie slightly below formations that were big producers 100 years ago. One advantage of the Mississippi Lime is that limestone's porosity and natural fractures can mean less expense on the drilling and hydraulic fracturing parts of the project. Expenses can total half and even a fourth of typical unconventional well efforts. Another advantage is that there is already plenty of seismic data available for the area from past exploration and drilling. Map created by Hugh Pickens and is a derivative creation from a similar map in the Tulsa World by David Housh.

Reuters reported on Phillips second-quarters earnings report on August 2, 2012 that Phillips is working to run more shale crude from the Mississippi Lime play in Oklahoma and Kansas at its 198,400 bpd refinery in Ponca City, Oklahoma by trucking crude from the company's existing gathering systems.[20] Rod Walton reported in the Tulsa World on September 24, 2011 that Mississippi Lime - porous limestone formations in northern Oklahoma and southern Kansas has been yielding reservoirs to horizontal operators such as SandRidge, Chesapeake, Devon and Tulsa-based Eagle Energy LLC during the past two years. The "new" reserves actually lie slightly below formations that were big producers 100 years ago. Phillips Petroleum Co., for instance, made its name in the nearby Burbank Field, on the eastern edge of the play that includes Osage, Pawnee, Kay, Garfield, Woods, Alfalfa and other northern Oklahoma counties. "It's sort of amazing that all of this has been sitting there and waiting for horizontal drilling," says Eagle CEO Steve Antry. "The vertical wells hardly drained any of that." The move now is toward the deposits containing mostly oil and natural gas liquids. [21]

The Mississippi Lime's ratio is often 52 to 55 percent oil, according to reports. "We're into the second tier of this renaissance," says Chip Minty, a spokesman for Oklahoma City-based Devon Energy Corp. "Now what we're doing is taking the same technology beyond the shales to the carbonates, such as limestone." One advantage of the Mississippi Lime is that limestone's porosity and natural fractures can mean less expense on the drilling and hydraulic fracturing parts of the project. Expenses can total half and even a fourth of typical unconventional well efforts. Another advantage is that there is already plenty of seismic data available for the area from past exploration and drilling. "It's a reasonably low-cost play where hydrocarbons have been found before, with a lot of wells drilled in the past," says RAM spokesman Robert Phaneuf. And that gives you good data points."[22]

External Web Sites

References

  1. Austex Web Site. "Business Overview" retrieved July 2, 2013.
  2. Austex Web Site. "Business Overview" retrieved July 2, 2013.
  3. Austex Web Site. "Business Overview" retrieved July 2, 2013.
  4. Austex Web Site. "Business Overview" retrieved July 2, 2013.
  5. Austex Web Site. "Investor Fact Sheet" retrieved July 2, 2013.
  6. Austex Web Site. "Investor Fact Sheet" retrieved July 2, 2013.
  7. Mining Weekly. "AusTex raises capital for Snake River development" by Esmarie Swanepoel. October 21, 2013.
  8. 4-traders. "AusTex Oil Limited : Record monthly production of 26,815 BOE for August" September 18, 2013.
  9. Upstream "AusTex spuds Snake River well" August 7, 2013.
  10. Upstream "AusTex spuds Snake River well" August 7, 2013.
  11. Proactive Investors. "AusTex Oil production rises 28% to 602 barrels of oil equivalent per day" July 18, 2013.
  12. Oil Voice. "AusTex reports solid production of 17,360 BOE for May" July 2, 2013.
  13. Oil Voice. "AusTex reports solid production of 17,360 BOE for May" July 2, 2013.
  14. Oil Voice. "AusTex reports solid production of 17,360 BOE for May" July 2, 2013.
  15. Seeking Alpha. "Verticals Could Be Key To Mississippi Lime Development" by Braden Holt. July 2, 2013.
  16. Austex Press Release. "AusTex reports drilling success in Kansas" June 18, 2013.
  17. Austex Media Release. "AusTex Oil Limited to List on the TSX Venture Exchange on Wednesday - 22 May 2013" May 22, 2013.
  18. Oil and Gas Journal. "Oklahoma: Eastern Mississippi lime play spreads out" August 6, 2012/
  19. Middle East North Africa Financial Network. "Red Fork Energy raising A$50m to accelerate Mississippian drilling" August 11, 2012.
  20. Reuters. "Phillips 66 profit jumps 14 pct, shares up" by Kristin Hays. August 2, 2012
  21. Tulsa World. "Horizontal drilling breathes new life into Mississippi Lime oil region" by Rod Walton. September 9, 2011.
  22. Tulsa World. "Horizontal drilling breathes new life into Mississippi Lime oil region" by Rod Walton. September 9, 2011.

About the Author

Hugh Pickens

Hugh Pickens (Po-Hi '67) is a physicist who has explored for oil in the Amazon jungle, crossed the empty quarter of Saudi Arabia, and built satellite control stations for NASA all over the world. Retired in 1999, Pickens and his wife moved back to his hometown of Ponca City, Oklahoma in 2005 where he cultivates his square foot garden, mows nine acres of lawn, and photographs local events at the Poncan Theatre and Ponca Playhouse.

Since 2001 Pickens has edited and published “Peace Corps Online,” serving over one million pageviews monthly. His other writing includes contributing over 1,400 stories to “Slashdot: News for Nerds,” and articles for Wikipedia, “Ponca City, We Love You”, and Peace Corps Worldwide.

Other Articles by Hugh Pickens about Ponca City

Full Disclosure

I am an independent investor who is a stockholder in Austex Oil Limited and the purpose of this web site is to follow Austex Oil Limited to document and understand the company's plans and policies and to analyze the company's business strategy. I began building my position in Austex Oil Limited in 2013 and am long Austex Oil Limited. I will disclose publicly if I close my position on Austex Oil Limited or go short. Unless stated otherwise, there is a citation for every statement in this article. Nothing in this report is to be taken as a recommendation to buy or to sell stock in Austex Oil Limited.

Updates to the Web Site

This web page is frequently updated so check back periodically to see the latest information or subscribe to the rss feed for this article. If you have any information or insights that you would like to see added to this report on Phillips 66 please contact Hugh Pickens by email at hughpickens AT gmail DOT com.

Copyright

The material in this article is licensed under under the Creative Commons under an Attribution-Noncommercial-Share Alike 2.0 Generic license. Except for short, fair use excerpts, the material on this article cannot be used for commercial purposes without permission of Hugh Pickens. Attribution for use of any material from this article must be provided to Hugh Pickens and if used on the web a link must be provided to http://hughpickens.com.

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