Company Profile - Aurora Oil & Gas Limited (Aurora) is a Perth headquartered company engaged in oil and gas exploration. The Company is engaged in the development and production of oil, condensate and natural gas in Karnes, Live Oak and Atascosa counties in South Texas. Aurora participates in approximately 77,000 contiguous gross acres in the heart of the trend, and holds approximately 19,100 net acres within the liquids rich zones of the Eagle Ford shale. It has operations focused solely on exploiting long life unconventional oil, natural gas and condensate production from the eagle ford shale gas play ion shore South Texas. Around 80% of Aurora’s net production from the Sugarkane Field is oil and natural gas liquids. Aurora is listed on the Australian Stock Exchange and the TSX in Toronto.
 
Analysis – Production numbers are continuing to trend positively, delivering a 15% Quarter on Quarter increase, driving a 9% increase in quarterly revenue. The operated acreage is making an increasing contribution with now 19 wells on productions and new wells demonstrating strong 30d flow rates.
 
Aurora has reported December 2013 quarter production of 2.27mmboe which is 15% ahead of September 2013 Quarter 2013 production came in at 7.78 mmboe a touch above the 7.4 – 7.7 mmboe guidance range. The reported sales revenue was $157 Million, the realised oil/condensate price which was approximately $92.40/bbl was 10% below the September quarter due to the widened spread between the Brent Crude and and Light Louisiana Sweet Crude Oil. This reduction was offset by an estimated 16% increase in realised Natural Gas Liquids prices approximately $35.10/bbl.
 
Aurora has a strong inventory of PUD (proven undeveloped) well locations more than 900 gross wells and further infill drilling opportunities in partnership with Marathon Oil Corporation. With recent downspacing results delivering positive data for both 40 and 60 acre spacing, a pilot programme in 2014 will trial 30 acre spacing. New batch drilling and frac techniques are reducing costs and would generate upside to operating margins shold the trend be mainqtained. The company’s Sugarkane project falls within Marathon Oil’s designated core acreage in the Eagle Ford and Aurora is scheduled to participate in 49-53 Net wells in 2014. It is clear that Aurora’s leases are a core component of Marathin Oil’s Eagle Ford shale portfolio given the step up in drilling activity this year.


Sugarkane Field – Eagle Ford Shale (Source – Company Reports)

Aurora announced that it had secured 14000 net acqres in the Eaglebine play, located in East Texas. Aurora is still actively acquiring leases, so little information was wreleased in relation to its location, prospectivity etc, however the company did say its acquisition cost to date have been moodest and it does not anticipate material expendeiture on the play in 2014. It’s therefore too soon to judge the potential impact of this play on Aurora’s valuation. It’s acreage acquisition strategy to date has proven to be value accretive.
 
55 gross new produving wells delivered in the fourth quarter (15.6 net wells ). During third quarwter it was 37 gross and 10 net. Currently there is aggregate of 387 gross wells (103.2 net) are now in production. Average daily gross production was 24,600boepd (net 18,200boepd) a 15% increase quarter on quarter. Another 50 gross new wells are spudded in the period, including three eon the company’s acreage.The company has $42 Million of cash as of 31^st December with $300 Million of undrawn credit facilities. The company expects to partivcipate in 49-53 net wells with a capex estimate of US$455-495 Million.
 
Recent trials of down spacing (drilling wells closer together to optimise recovery) has led to an increase in well inventory with 30 acre spacing to be trialled in 2014. Operator Marathon oil will also continue testing the Austin Chalk potential in 2014, which is expected to add further to the drilling inventory. Unlocking the Austin ?Chalk potential would be the key for AUT. AUT and operator Marathon Oil are trialling drilling wells into the Austin Chalk formation. Early indicators awre that the Austin Chalk wells could be as productoive as regular Eagle Ford Shawle wells.
 
The varying levels of participation in the Sugarkane Field and Eaglebine prospect are outlined in the table below:


Source – Company Reports


Source - Thomson Reuters

Price		Price % Change
Close:	2.69 (04-Feb-2014)	3M:	(15.94%)
52 Wk. High:	3.92 (18-Feb-2013)	6M:	(20.18%)
52 Wk. Low:	2.63 (25-Jun-2013)	1Y:	(28.07%)

The core acreage held by AUT is in the liquids rich zone of the Eagle Ford Shale in Texas. The acreage displays very attractive economics, linked mainly to the oil price. This makes development resilient to the cyclically low US gas and NGL prices. If global or local oil prices weaken substantially we believe the field would still provide the internal rate of return per well that makes the expansion economic. Depending upon the level of reserves growth from down spacing we expect atleast five more years of field development and production along with earnings growth. Development costs for  the Eagle Ford are less than US$20/bbl.
 
Within the US the industry expects to achieve ongoing improvements in production rates and drilling cost reduction as drilling and fracture stimulation techniques for shale acreage is optimised.  As a development drilling story the critical risks for AUT are technical and commercial success rather than exploration based. The Austin Chalk in particular is at an early stage of delineation within the Aurora permits, notwithstanding the Austin Chalk has previously been successfully developed on a regional basis along this trend. The down spacing opportunity is gathering momentum and in our view the extent of quarterly production growth will provide the main catalysts through 2014 in determining the success of this concept.  We will be putting a BUY on Aurora at the current price closing price of $2.69.
 

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