austex article

August 07, 2012

Austex Oil’s Hopes To Exit 2012 Producing 500 BOEPD As Drilling Ramps Up

Nought point one four per cent doesn’t seem like a big number, but when it relates to Austex’s net acreage share (23,000) of the 17 million acre Mississippian lime formation, it’s the absolute rather than relative numbers that matter.  Stretching across Kansas and into Oklahoma, the Mississippian represents one of America’s major liquid rich plays, up there with the Bakken, Niobrara, Eagle Ford and Wolfberry.  The company’s projects are dotted along the fringe of the formation in both Counties and sit close to existing projects and facilities.

The Snake River project in Northern Oklahoma has seen the most activity of any Austex project, and a result of the company’s 100 per cent working interest removing many obstacles to development.  Conoco Philips’ oil refinery sits a mere 15 miles south west of the project, Mustang Gas Corporation operates gas gathering facilities and sales lines within 1 mile of Austex’s production hubs, while 1 mile south west lies a compression and liquids stripping plant.

The Balder#1-30N horizontal well is the latest to be drilled at Snake River, and measures 8,952 feet long, including a 3,911 foot horizontal section which was stimulated by a 19 stage frac.  Austex has partnered with Range Production Company Inc, a subsidiary of Range Resources Corporation, and holds a 13.73 per cent working interest in the well.  Test production has so far exceeded expectations, with a peak a 24 hour production rate of 1,363 boe per day.  The well has provided a large amount of reservoir data, which along with its success will prove invaluable in assessing the rest of Snake River.

With the establishment of an initial Snake River production hub at the East Tonkawa Unit (ETU), Austex is now establishing a second production hub at the Blubaugh leases ahead of the drilling / completion of several production wells.  Blubaugh #20-1, #20-3, #20-4 and #21-3 have all been drilled/cased and are currently awaiting completion, while the salt disposal well Blubaugh #20-D1 is already in place.  The Blubaugh and four earlier ETU vertical wells have intersected multiple stacked pay zones including the Layton, Cleveland, Tonkawa Sands, Mississippi Lime and Woodford Shale.  With other Oklahoman operators also sizing up these intervals for horizontal drilling, Austex is in an enviable position where it can enjoy their impending vertical production, while also observing and learning from the likely horizontal production of others.

Following the Mississippi Lime up into Kansas, Austex has been heartened by the activity of Apache Corporation who has recently acquired 580,000 acres of oil and gas leases in the Mississippi Lime, including leases in Thomas and Sheridan Counties.  Austex is active in both Counties, with its 53 per cent working interest in the Cooper project (Sheridan County) recently commencing drilling of the Melanie #1 well.  Melanie #1 is the first well drilled after TameCat LLC was employed to apply its unique seismic interpretation methodology to identify numerous high-grade targets.  In Thomas County sits the 70 per cent owned Colby project where Austex recently increased its gross acreage by 7,400 acres to 15,500.  After a recent 3D seismic survey, TameCat is now interpreting the results with a view to guiding Austex’s next drill holes.  The plan of work at Cooper and Colby is with a view to de-risking and proving up the assets, as well as expanding its presence in the Mississippi Lime.

Austex’s most recent production and reserve figures relate to June, where it excelled on both counts.  June production averaged 299 boepd and an independent reserves report published by Integrated Petroleum Technologies estimated 1P reserves of 3,858 boe, 2P reserves of 5,951 boe and 3P reserves of 13,379 boe.  The company is aiming to hit 500 boepd by the end of the year, with the figure representing a level that management believes will bring positive cash flows.  Achieving such a figure will of course hinge on drilling success at Snake River however, should this come off, Austex stands ready to commit to an even more aggressive drill programme in 2013, and one that will ultimately propel the company towards 1,000 boepd.

Austex currently trades at a heavy discount to the NPV10 of its 1P reserves (US$41.3 million vs US$96.7 million), and investment bank C.K Cooper attributes this punishment to the company having “...a highly undeveloped reserve base, a small asset portfolio, low trading liquidity, a foreign stock exchange listing, and anticipation by investors of dilutive capital raises to fund future development activities”.  Addressing one of these failings is the company’s intention to dual list on the TSX before the end of 2012.  While this will provide local investors with ease of investment access, dilution is a likely consequence, but one inevitable for smaller exploration companies. 

http://oilbarrel.com/news/austex-oils-hopes-to-exit-2012-producing-500-boepd-as-drilling-ramps-up