Extract from a recent interview between the Energy Report and a...

Extract from a recent interview between the Energy Report and a US based capital fund manager Young Capital Management LLC:

JY: A position I recently added is AusTex Oil Ltd. (AOK:ASX). It is traded in Australia, which is unusual for a small energy stock with most of its assets in the Mississippian play of Oklahoma and Kansas. That could be why it trades at a discount to its asset value and to its peers. AusTex is next to Range Resources Corp. (RRC:NYSE) on the Nemaha Ridge. Range has drilled more than 100 vertical wells in the area. Many have had more than 100% rates of return. More recently, Range has drilled eight horizontal wells within two miles of AusTex’s position. AusTex was in one of those wells from which they expect a 30-day average rate of 1,000 bbl/d or more. With a well cost of less than $4M and production of 1,000 bbl/d, the well could pay out in a few months. AusTex is a minority working interest partner in that particular well, with approximately 14–15% interest. AusTex has 6,000 net acres adjacent to that well. The company has drilled a few vertical wells on the land with well costs around $600K and 30-day rates in excess of 100 bbl/d. Those are very high rates of return.
Another AusTex neighbor is Apache Corp. (APA:NYSE), which just had its analyst day. Apache has hundreds of thousands of acres in the Mississippian in Kansas, where it envelops AusTex’s position in Kansas. Apache is going to drill wells all around AusTex. It is possible that AusTex is in the center of a newly discovered oil field. It’s exciting, but too early to give it too much credit in my valuation.
TER: Your valuation on AusTex is based on production and cash flow plus a big growth component?
JY: Yes. There will be a lot of growth from the 6,000 acres next to Range. AusTex will be able to drill hundreds of vertical wells or dozens of horizontal wells that will each have net present values well in excess of the cost of the well. You can more than double your money every time you drill a well. The market cap right now is just above $30M. It’s a small company, but if it drills a few wells, it can ramp up production and cash flow significantly. It will be able to internally finance the drilling and get payback in approximately six months for each well.
TER: AusTex stock has been pretty hot this year—tripling up to a few weeks ago and then selling off. Is the word getting out or is this still somewhat under the radar?
JY: I think one or two investors in Australia figured it out. In February and March, people got excited. Prior to that it, it was stable in the $0.08–0.11 range for a long time.
The stock started to move after announcing excellent vertical well results. Range’s results were also great. Based on both companies’ results, investors were comforted that it was not a “one-off” well. Recently, the stock has declined with the sector as a whole. With additional drill results, the stock could rebound and head higher. Competitors like Red Fork Energy Ltd. (RFE:ASX) and a few other Mississippian-focused companies have higher per-acre, per-flowing barrel and cash-flow valuations. It has a lot of room to the upside. I have bought this dip.

http://oakshirefinancial.com/2012/06/27/seeking-high-growth-oil-and-gas-juniors/