good deal maybe not, page-10

From the AUT presentation, it looks as though only the free-carry new wells will be drilled this year. Plans can change but that is what it says.

If so, the Easley rig will move on to Rancho and the Morgan rig will move to Longhorn 1. The Rancho rig will then move to Longhorn 2. There will then be Longhorn 3 and Ipanema to drill.

The presentation is showing 15 new wells for 2011. But it is also suggesting a capital raising by AUT in 2011. That will be to prime the pump. 2012 will be 25 new wells per the plan (for all acreages). Medium term plan appears to be to secure the land under production with a total of 88 wells at 640 acre spacing. They might do that by the end of 2013. That is all too far out to be reliable.

AUT is in a different position from ADI re the new drilling after free-carry. If there is simultaneous drilling on S/L and its other acreages, it will have to find 10% of the S/L costs (like ADI) and also 25% of the Longhorn costs or 30% of the Ipanema costs. The S/L free-carry wells will be drilled first and will be paid out first.

So, if Hilcorp start 2011 with 2 rigs on S/L and 2 on Longhorn, ADI will have to find 20% of a well cost (even before revenues it must have enough to cover most of the entire cost of a well), but AUT will have to find that 20% plus another 50%. Because well costs are paid up front and production revenues are paid in arrears that might leave AUT stressed for the second round of multi-drilling. That's what they are saying in the presentation, would be my guess.

But then production revenues will be starting to stream in. I can't see a scenario in which ADI would become cash stressed. They are not going to start 2011 with 4 to 6 rigs drilling on S/L. That's certainly not in the AUT drilling programme in the presentation.

So the next few months will see Sugarloaf completed with 6 producing wells (fingers crossed for Kowalik but the AUT presentation is assuming that it can be sorted out) and a new reserves appraisal based on that production. Lots of excitement to come and then the excitement moves over to AUT for the next few months after that.

But, maybe they will bring in a third rig....who knows?