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ASX oilies marching to the North American unconventional beat: Part One  Join our daily free Newsletter

MENAFN - ProactiveInvestors - Australia - 06/12/2012

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North America is at the forefront of unconventional oil and gas developments and a number of ASX-listed companies have focused on these highly prospective plays, In this first part, Proactive Investors examines the Eagle Ford Shale and the Mississippi Lime.
(MENAFN - ProactiveInvestors - Australia) Australian oil and gas companies operating in North America offer investors the opportunity to gain exposure to some promising unconventional and conventional hydrocarbon provinces.

However, there many different plays or their variations that are being targeted, presenting investors with a potentially bewildering amount of information to absorb in order to make a reasoned investment decision.

In a two part series, Proactive Investors presents some of the key plays in North America and some examples of companies operating in them.

Shale and tight hydrocarbon basins

In this first part, we will examine some of the liquids rich and oil bearing shale and tight plays that have captured the attention of most investors, having proven to have the ability to change the U.S. Energy landscape.

The success of these plays owes itself to ongoing technological improvements in both horizontal drilling and hydraulic fracture stimulation as well as good old economies of scale.

Improvements in the use of these technologies and techniques have unlocked the potential of shales, which had previously being recognised as source kitchens for conventional oil and gas plays, to be producing horizons in their own right.

This has seen shale gas rise to form a major part of the U.S. energy mix, leading to the now infamous gas glut while shale oil production has also grown rapidly in recent years.

Eagle Ford Shale

Arguably one of the active oil and gas plays (conventional or unconventional) in the world, the liquids rich Eagle Ford in Texas offers profitable drilling results that have been compared favourably with the more oil prone Bakken Shale.

The value ascribed to this acreage can be seen in the scale of deals made here with some passing US20,000 per acre in 2011 while big American independents such as Chesapeake Energy (NYSE: CHK), Apache Energy (NYSE: APA) and Anadarko Petroleum (NYSE: APC) have all set up shop here.

For Australian companies, the biggest and best well known shale focused player is Aurora Oil & Gas (ASX: AUT), a A1.5 billion market cap, which holds a large stake in the Sugarkane gas and condensate field operated by Marathon Oil Corporation (NYSE:MRO).

BHP Billiton Petroleum (ASX: BHP), the oil and gas arm of the world's largest miner, also holds a significant stake in the Eagle Ford as well as the Permian Basin, Fayetteville Shale and Haynesville Shale.

Texon Petroleum (ASX: TXN) is currently involved in a proposed merger with Sundance Energy Australia (ASX: SEA) that will create an Eagle Ford focused company.

The 7,500 acre Eagle Ford acreage currently holds five producing wells with another two being drilled.

Together, Texon and Sundance would have production of 1,242 barrels of oil equivalent (boe) per day from their Eagle Ford assets as well as proved and probable (2P) reserves of 15.9 million boe.

Further growth in production and reserves is likely as the Eagle Ford is considered to have low risk development potential with the ability to host more than 100 wells.

Austin Exploration (ASX: AKK) holds a 93.5% working interest in the 5,000 acre Texas Birch Prospect, which targets the Eagle Ford Shale.

The company has drilled three vertical wells to test the formation though strong oil and gas shows encountered while drilling the Birch-3 well through the shallower Austin Chalk Formation has led to the decision to produce and deplete the Austin Chalk ahead of exploring the Eagle Ford potential.

Strike Energy (ASX: STX) has also built up a substantial net acreage position of 10,300 acres in the Eagle Ford and is currently carrying out clean-up operations on its initial horizontal production test well.

The Bigham-1H well was successful fracture stimulated in October with data indicating that a very large fracture system was created while gas oil ratio and oil gravity appears to be consistent with other wells along trend.

Bigham-1H has flowed small amounts of gas though Strike does not believe this is material to the potential of the well.

Strong production from nearby wells have also served to considerably de-risk Strike's acreage, which could hold between 35 million and 45 million boe of oil and gas.

Moving further afield, Sun Resources (ASX: SUR) is targeting the tight Woodbine oil sands, which is sourced from the Eagle Ford Shale, and has built up a 18,836 net acre position over four projects.

The company is poised to participate in production testing of its first Texas Woodbine horizontal well, Beeler-1H in the Richland oil Project.

This is the first of three horizontal wells and one vertical well in the project.

Additionally, Sun and partner Amerril Energy are drilling one vertical well and three vertical wells at the Amerril Oil Project.

Production from all these wells can be quickly and cheaply tied into nearby existing infrastructure for early cashflow.

Success will also de-risk Sun's wholly-owned Delta Oil Project as well as the recently acquired Normangee Oil Project. Potential also exists for other stacked pays to be produced in the future.

Mississippi Lime

The Mississippian Lime oil play in Kansas and Oklahoma is a tight carbonate formation that responds well to fraccing with horizontal drilling increasing the likelihood of intersecting natural vertical fractures that may already contain oil.

While it contains less liquids than the Bakken, it has infrastructure in place due to decades of drilling and is only about half as deep at about 4,000 to 6,000 feet. Less pressure is also required to fracture carbonate rocks compared to shale.

SandRidge Energy (NYSE: SD) and Chesapeake Energy (NYSE: CHK) are two of the largest companies operating in the area.

Of the Australian players, AusTex Oil (ASX: AOK) has already established steady production from Mississippi Lime wells and is targeting production of 1,000 barrels per day (bpd) of oil in 2013.

To achieve this, the company is drilling two vertical wells per month, adding to the seven producing wells and six wells to be brought on line by Christmas.

With net back of about US40 per barrel, AusTex could see earnings of about US1.2 million a month after royalty and tax when it hits its 1,000bpd target.

It is also participating in horizontal wells drilled by Range Resources Corporation (NYSE: RRC) that promise to substantially increase production and reserves.

AusTex holds 23,000 net acres in both Kansas and Oklahoma with its main focus on its Snake River project.

Red Fork Energy (ASX: RFE) holds a large 75,000 net acre position that have the potential to host 900 gross drilling locations in full field development.

The company has thus far completed eight horizontal Mississippi Lime wells for production with one well being stimulated, another three awaiting completion and drilling underway for three wells.

While the majority of these are located in Development Area 2, Red Fork has also started work on Development Areas 3 and 4.

In all, the company has 10 development areas planned across five counties.

Additional play potential also exists in the deeper Woodford formation where a nearby horizontal well achieved initial flow rates of 353 barrels of oil and 262,000 cubic feet of gas per day.

In the second part of the series, we will take a look at the Permian Basin in Texas and the Duvernay Shale in Alberta, Canada.


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