BY:BARRY FITZGERALD From: The Australian September 10, 2013
THE junior oil and gas sector of the ASX has long cast its net far and wide in search of opportunities.
Gone are the days when the juniors were pretty much restricted to the small oil and gas pools in Australia's onshore basins.
Brigades of juniors can now be found offshore in east and west Africa, central Europe, throughout Southeast Asia, the Middle East, Latin America and other parts of the globe.
But today's interest is in that brigade of ASX-listed juniors that have climbed on board the unconventional shale oil and gas boom in the US, the one that some pundits will tell is why much of America is not interested in military intervention in Syria.
It seems national security issues around energy dependency on the Middle East ain't what it used to be.
Run through the ASX lists and up will pop a dozen or so juniors that are now making their way in the unconventional space (hydraulic fracturing and horizontal drilling of formations in which hydrocarbons are tightly held), some with conventional (free-flowing) oil and gas interests thrown in as part of the package.
They have been enjoying some real success, too, with a combined market value now nudging $3 billion, albeit with half of that accounted for by Aurora Oil & Gas (AUT).
It's got too big for this column so it's a case of moving on to one in which there has been quite a bit of interest lately, Lonestar Resources (LNR).
The interest in the stock has seen it power from 16c at the start of August to 28c yesterday, valuing the company - created with last year's merger between the ASX-listed Amadeus Energy and the then unlisted Fort Worth Texas based Lonestar - at just under $200 million.
Baillieu Holst analyst Adrian Prendergast has had a "buy" recommendation on the stock for a while because he likes its strategic point of difference.
"Lonestar has used existing cash flow from its conventional Amadeus (US) assets to fund its entry into the Eagle Ford shale, which is now widely recognised as a premier shale oil play in the US," Prendergast said.
"It has avoided amassing a huge land bank and instead has focused on maximising economic returns from its acreage with four years of drilling locations ahead. This strategy has delivered strong earnings growth and lower drilling and completion costs that are near best-practice."
What's more, Prendergast believes Lonestar will continue to outperform as its strategy delivers superior earnings growth compared with some of its peers that "appear fixated on amassing scale and acres alone".
The Eagle Ford shale oil play is best known in these parts for making BHP Billiton's $US20bn ($21.7bn) push in to the US unconventional space in 2011 the winner it has become after the initial gas focus of the push became unstuck when US gas prices collapsed.
BHP is spending $US4bn annually growing its US shale oil/gas business, redefining the company in the process.
Lonestar is already defined by its US operations, which generated revenue of $US32.9m in the first half, and a net profit after-tax of $US19.7m.
Its Eagle Ford shale interests are located in the high-value condensate (light oil) and oil windows of the play where it has built up an inventory of more than 50 additional horizontal drilling locations, keeping it busy over the next four years.
Prendergast has Lonestar posting a $US51.5m profit in 2014, rising to $US86m in 2015. All very interesting when compared with its current market cap.
AQO Price at posting:
15.0¢ Sentiment: ST Buy Disclosure: Held
