Hi Rock,The AUT investor report does 'tend' to indicate that...

Hi Rock,

The AUT investor report does 'tend' to indicate that Hilcorp will 'only' be drilling on their acreages in Q3 and Q4 and they base some of their assumptions for capital requirements on that.

If this was the case then 'Yes' there would be no more drilling on the sugarloaf AMI after the first 3 free carried wells. However what the JVP's say and what Hilcorp eventually does can be completely different.

I would guess that Hilcorp are forming their own idea of the future drilling campaign for the rest of 2010. This will be based on the following:
1. The success or otherwise of the 3 free carried wells.
2. Lease requirements - Leases up for re-newal may be only renewed if the operator agrees to start drilling. The land-owner have a lot of push now that the Eagelford has taken flight.
3 Oil Price - If it stays around $80 then there will be more incentive to crank up operations.

Remember Hilcorp now have two rigs working. Who is to say that they may not simply bring in another two rigs to work over the AUT Longhorn and Impanema free carried wells and keep two rigs on at Sugarloaf.

All speculation on my part but these are some of the fundamental issues that make it hard to differentiate the JVP partners ADI and AUT. Based on the AUT investor report you would have to think they look better on paper.

But if Hilcorp really does crank it up this year and keep drilling away on the sugarloaf 'AMI' lease as well as the other AUT leases then expect some quick dilution and capital raising from AUT.

Dont get me wrong I think the play has been de-risked big time with Kennedy and Weston and all the JVP's will do well in the long term, but it will be tough to say which is the better value and by what sort of percentage.