IN 2005, when many oil and gas majors were exploring offshore, a group of Perth-based businessmen took a different tack by entering into unconventional onshore oil and gas in the US.
Aurora Oil & Gas was a little-known company exploring in a relatively unknown patch of land in Texas, after paying about $US250 an acre for its assets.
The region - known as the Eagle Ford - is now said to be one of the world’s most active shale gas precincts, with acreage selling for up to $US60,000/acre and about $30 billion expected to be spent in the region during 2013.
Aurora chairman Jon Stewart told WA Business News that, after years working in the [former] Soviet Union, it was the desire for a safer location that drew him to the US.
“(In the former Soviet Union) we would trade off technical risk for jurisdictional risk; the assets were a bit of a slam dunk really ... the real risk had to do with the fact that it was in Russia,” Mr Stewart said.
Mr Stewart teamed up with former chair of biotech company Imugene, Graham Dowland, and a number of Perth-based investors to test the market in US unconventional gas.
“We felt that there were opportunities there; particularly in a bullish commodity price scenario because most of the bigger companies had actually left onshore to go and focus on offshore or international projects,” Mr Stewart said.
ConocoPhillips was one of the only big names in the area at the time. Eight years on it’s a much more packed leader board, with BHP Billiton and Murphy Oil among those excited about the Eagle Ford’s prospectivity.
Aurora’s reserve forecasts have grown steadily since its first acquisitions, and brokers indicate it could even double in 2013 depending on a current program testing the proximity of wells.
GMP Securities notes Aurora’s current proved reserve (94 million barrels of oil equivalent) is based on drilling spaced at 80 acres. The company is testing if wells can be drilled closer and, if successful, could soon be in a position to report a significantly boosted reserve estimate.
In just one year the company has increased production from 4,000bboe per day to about 19,000 at the end of 2012, and increased revenue by 32 per cent to $US112 million for the last quarter.
Aurora is now Western Australia’s 11th largest company ranked by market capitalisation, which stands at $1.67 billion.
Spurring on Aurora’s progress is its partnership with US oil giant Marathon Oil, which became operator of the project in June 2011 through its acquisition of Hilcorp Energy Corporation’s Eagle Ford interests.
Marathon paid $US3.5 billion to acquire 141,000 acres from Hilcorp, which included the interests held in Aurora’s approximate 19,000-acre project.
The acquisition came during a strong rally in Aurora’s share price, which increased 34 per cent over three months to $3.5 a share in 2011, where it’s remained relatively stable since aside from a spike to over $4 early last year.
According to Aurora finance director Graham Dowland, Marathon’s investment was a significant vote of confidence in the project.
“Marathon - being a $20bn company - this was its main focus; it was telling the market it had split with its refining assets and was going to the Eagle Ford and this was a big play,” Mr Dowland said.
Marathon invested about $US1.3 billion in the play over 2012 and is expected to increase that to about $US1.9 billion this year.
It’s money Mr Stewart said Aurora simply didn’t have to effectively progress the project.
“There were thousands of people in the field (in 2012); we drilled 160 wells, we put in around $300 million of in-field infrastructure, several hundred miles of in-field pipe - did we have the capacity to run an operation of that size? No. Is Marathon capable of running an operation that size? Well absolutely - they did it,” Mr Stewart told WA Business News.
But Aurora’s decision to farm-out came earlier than Marathon’s involvement; it was in 2009 that the directors decided the project would benefit from a larger partner, and Hilcorp farmed-in.
That agreement enabled the start of Aurora’s first major drilling campaign in the Eagle Ford during 2010.
Aurora’s share price started that year at around 30 cents and finished it at $3 each - a result indicating the company made the right decision to relinquish control.
“Control is one thing, but effective execution of the development of a large project is something quite again,” Mr Stewart said.
“It’s much better for our shareholders if we ensure that we have the right type of partners by farming-out to a bigger company with the capacity and then we keep a very, very close eye on it.”