H1 2011
Oil : 109 bopd
Gas : 167 boepd
Total : 276 boepd
Oil produced from :-
Somerset : 43 bopd
Shoats Creek : 34 bopd
Alta Loma : 32 bopd
Gas produced from :-
Alta Loma : 120 boepd
S.Weslaco : 33 boepd
Shoats Creek : 14 boepd
Oil sold at $98/bbl and gas at $4.86 mcf
Revenues $2.84m
What about the future ?
The recompletion of Alta Loma(Sunny Ernie) in April resulted in restricted flows net to AEX of :-
Oil : 112 bopd
Gas : 437 boepd
Assuming all other flow rates remain constant, H2 should look something like :-
Oil : 189 bopd
Gas : 484 boepd
Total : 673 boepd
That’s a sizeable increase. Assuming same product prices for H2, I’d forecast revenues in the region of $3.4m for oil and $2.5m for gas, $5.9m in total, double that of H1.
But what of Shoats Creek? Will production increase in H2?
Hopefully it will but I suspect we‘ll need to be patient. As of 31 Aug, permission had been granted for a nearby well to be used for water disposal…critical for increasing production. One would have thought that shouldn’t take too long to organise. The other point to make is that the Cockfield sands require water-flooding at some point to maximise recovery of reserves. At what point I don’t know but it’s worth noting that the reserves upgrade was largely attributed to the Cockfield sands and the waterflood thereof.
Here’s a reminder of Shoats Creek initial discovery rates :-
OM-1 : 150 bopd (100% AEX)
OM-10 : 450 boepd, comprising 315 bopd + 135 boe gas (50% AEX)
The H1 figures look pathetic against these, which maybe tempers expectations. However, there has been a lot of stop-start during trials, producing too slowly causing the wells to wax up and too fast producing more water, hence the disposal requirement. Once they get the facilities sorted and the balance right, the figures will obviously make H1 look silly but will they actually impress? Time will tell. Looking ahead, the two planned wells are step-outs to the OM-10 well in the Willcox formation, so that should herald higher production rates than Cockfield if above numbers are anything to go by, which is good to see.
Clearly though, Shoats Creek production levels are going to be crucial in any valuation, particulary as these reserves represent 85% of the US assets. Because so many US assets produce oil over decades rather than years, I prefer to discount anything likely to be produced beyond 20 years as worthless in any valuation. So, of Shoats Creek booked 2P reserves, how many boepd on average need to be produced to deliver the booked 6.434mmboe within 20 years? Answer 881 boepd. Seems plausible on the face of it but we need to bear in mind that the seemingly higher producing Willcox wells are only 50% owned. We also need to bear in mind that greater reserves are attributed to the lower producing Cockfield sands. Note Shoats Creek 2P reserves increased from 3.73 mmboe to 6.43 mmboe, largely down to Cockfield. Note also, 150 boepd(OM-1) for 20 years will recover 1.1mmboe.
So what should we value these reserves at?
AEX ‘s audited April 2011 reserves report states PV10 of $134m (equivalent to 12p/sh). Whilst that may prove to be the case if AEX actually produces the reserves, we all know nothing like that would be achieved in a sale. Historically, in a market of average conditions, half decent flowing US 2P barrels of oil would fetch $10/bbl. Gas a good bit less(albeit Shoats Creek gas amounting to 3mmboe yields a large premium). Reserves are made up of approx 45:55 Oil:Gas. So maybe $9/boe in a fair market? Of course a fair market is not what we’ve got, so maybe $7/boe if AEX don’t have their backs to wall and $5 if they do? But all that assumes Shoats Creek delivers. As implied above though, the Cockfield formation will need to outperform the Wilcox in production terms to exploit all reserves within 20 years. I’ve no idea whether they’ll be able to do that, hence it leaves a question mark. My considered view is that a forced sale right now would likely be at $3/bbl equal to 2p/sh. Decent early progress on Shoats Creek production might push that to $4/bbl and spiffing results over the next several months might elevate that to $5 or $6/bbl. What it tells us is that Shoats Creek results are crucial to any evaluation.
Of course, AEX won’t be looking to sell as growing revenues could provide a vital lifeline, these being potentially substantial. No account has been taken of any deep Wilcox prospectively which might prove an added attraction to any buyer.
For those brave enough to get this far, perhaps somebody could explain why the April Shoats Creek reserves report appears to show gas being equivalent to 6mcf = 1boe. Surely, with a much higher calorific value, the boe figure has been understated?
E&OE
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Aminex PLC is engaged in the exploration for, and the development and production of oil and gas reserves. Its principal area of activities includes the United States, East Africa, North Africa and North Korea. Its segments include Producing Oil and Gas Properties, Exploration Activities and Oilfield Services and Supplies. The Company's licenses in Tanzania include Nyuni PSA, Kiliwani North and Ruvuma PSA. During the year ended December 31, 2010, it drilled three wells, one in Tanzania and two in the United States. As of December 31, 2010, the Company held leases at Shoats Creek covering approximately 2,100 acres. Aminex Oilfield Services & Supply Company (AMOSSCO), its wholly owned subsidiary, provides logistics services to oil industry and sources oilfield equipment and consumables to international oil companies. In March 2012, it announced that Aminex USA, Inc. its subsidiary, completed agreements to sell leases and other assets consisting of the Somerset Field in Texas. more »
11 Posts on this Thread show/hide all
Davjo
Outstanding contribution - thank you.
You finish by asking
"....For those brave enough to get this far, perhaps somebody could explain why the April Shoats Creek reserves report appears to show gas being equivalent to 6mcf = 1boe. Surely, with a much higher calorific value, the boe figure has been understated? "
I don't understand the question. The industry uses a standard conversion ratio of 6000:1 as a rule of thumb. It's got nothing whatever to do with valuation and never has had. It's just a measure of calorific equivalence. AIUI everybody does this and has done for ever.
In reply to tournesol, post #1
Hi RG
I don't understand the question. The industry uses a standard conversion ratio of 6000:1 as a rule of thumb. It's got nothing whatever to do with valuation and never has had. It's just a measure of calorific equivalence. AIUI everybody does this and has done for ever.
Yes, that equation is commonly used but I certainly have seen specific calorific values used when converted into boe where the actual cv is significantly higher than the norm. In the case of Shoats Creek gas, it was reported in the interims that :-
http://www.aminex-plc.com/files/110831_Half_yearly_Financial_Report.pdf
gas attracted a premium of up to $5 per MCF, almost twice the posted price, because of
its rich components.
Hence one would expect this gas to be worth perhaps up to twice that of the average boe. As to valuation, if one uses the regional average $/boe sale price achieved to arrive at an estimated value of booked reserves, one is likely to arrive at the wrong answer. 2P Shoats Creek gas is booked at 3.08 mmboe. 6.0 mmboe would look eminently better. Whether that can be justified I don't know, hence my question. For all I know, the AEX comment may only relate to early gas produced being just a flash in the pan ;-)
Hi D
the conversion of gas to boe has never had anything to do with value - there has never been any suggestion that 6000cu ft of gas is worth the same as 1 bbl - only that there is an approximate equivalence of calorific value. Not at a specific detailed level of gas from field A vs oil from field B but as a very broad brush measure across the global oil industry.
personally I much prefer NOT to convert gas to oil equivalent like that and particularly not for the purposes of valuation. I think you need to apply specific unit values derived from relevant local market transactions. However since I'm too lazy to do that myself, I usually just whinge about it. :~)
T
T & D
Good day!!
Some gas, at wellhead, is very rich. Even after processing to separate out condensate, the remaining "sales" gas can be very rich in NGL fractions (C3/C4), C5 and even some C6 can remain in gas resulting in a gas with a calorific value > 1300 btu/scf (note that a typical "well processed" sales gas would have a value of 950 - 1050 btu/scf) so in case of rich SC gas then there is up to 30% more "btus" than normal sales gas. (note I am guessing what SC gas is here, I dont actually know, just using an SC gas richness for purposes of discussion).
So...as Henry Hub gas is proced in $/MMbtu then SC gas would be price "benchmarked" on its calorific content which could be up to 30% more value than your typical sales gas. When doing the conversion of using 6000 scf/boe (energy value basis, based on a typical sales gas calorific value of natural gas) then you would need to factor in this rich gas "correction" when trying to assign value to rich gas.
example, for HH at $4/MMbtu or approx $4/1000 scf @ 1000 scf/btu (typical) or $24/boe then SC equivalent would be $5.2/MMbtu or $5.2/1000 scf or $31.2/boe. Put that in a DCF model to assign value ($/boe) to SC over a 10-20 yr life span and you would see a large impact/effect on NPV10 $/boe.....thats what I think DJ is saying.
wading back out again....
JPGH
In reply to JPGH, post #4
thats what I think DJ is saying.
Precisely J, thanks!
wading back out again....
Please wade back in any time you fancy ;-)
I forgot to speculate the point that the two OM-10 step out Wilcox wells may have the potential to add to reserves?
My considered view is that a forced sale right now would likely be at $3/bbl equal to 2p/sh. Decent early progress on Shoats Creek production might push that to $4/bbl and spiffing results over the next several months might elevate that to $5 or $6/bbl.
Perhaps I was being too pessimistic ? Melrose RNS this morning provides a rather interesting read-across valuation :-
http://www.investegate.co.uk/article.aspx?id=201112060700263939T&fe=1
Melrose Resources plc ("Melrose" or "the Company"), the oil and gas exploration, development and production company, today announces that it has completed the sale of its gas assets in South East Texas to Faulconer Resources 2010 Limited Partnership LLP for a cash consideration of $5.8 million. The divested assets had net proven plus probable reserves of 2.5 Bcf (year end 2010), production of 1.2 MMcfpd (average first half 2011) and the consideration received exceeded book value.
That's an astonishing $14.50/boe !!
In reply to davjo, post #6
Hi davjo,
Perhaps Melrose's sale price isn't so surprising, given that we have been told repeatedly that US assets tend to be sold based on production, rather than reserves.
On a production basis, I make that $29,000/boepd. I've previously been told/read that producing oilfields tend to to go for $50-100,000/bblpd - so the figure seems broadly consistent with that, considering it's gas.
Now let's turn to Aminex's situation... I'm afraid, based on this, I don't think Shoats is saleable at any reasonable price in its current state. Aminex HAVE to demonstration decent, consistent production there before it will be - that's why I've been so frustrated by the slow reported progress there (as, I'm sure, the company has been too).
Right now, Alta Loma is Aminex's best producing asset - but even there, Aminex's net share is ~100bopd + ~2.5mmcfpd of gas (using figures from the interims). Allowing a generous $100,000/bblpd for the oil and the same as Melrose for the gas, that yields an optimistic value of $23m. However, at the AGM Brian expressed most forcefully to me that he thought Aminex was better off producing from Alta Loma than selling it.
Cheers,
Mark
In reply to marben100, post #7
Hi Marben
Perhaps Melrose's sale price isn't so surprising, given that we have been told repeatedly that US assets tend to be sold based on production, rather than reserves.
Yes, although I've never quite understood the logic of that without factoring in reserves but I guess the longer the reserve life, the higher $/boepd is paid and that's what the general $50k-$100k/day range reflects? The MRS reserves suggest a life of 6 years, whereas Shoats Creek more like 20 years. Nonetheless, the $/boe reserve based read-across valuation does I believe have some validity, provided the assets are produced to their full potential over a reasonable time frame....but as you note, this remains a frustrating unknown at the mo.
In reply to davjo, post #8
Fair enough, Davjo.
The key point, however is that Aminex really need to solve the technical issues at Shoats and demonstrate that it can be a valuable producing asset. Without healthy production, no prospective buyer will value it - it just looks like the worn-out old oilfield that Aminex bought for a song originally.
At the current share price, operational success at Shoats could be just as valuable/transformative to shareholders as positive news from Tanz (in the short-term). Clearly longer term, Tanz is far more valuable - but without other proven assets the Damocles sword of dilution hangs over the share price.
I guess Kinder Morgan's acquisition of El Paso and uncertainty about El Paso's upstream assets (which KM don't want) isn't exactly helpful.
Over the years I've just got worn down by the interminably slow progress and repeated dilutions here. It makes me very appreciative of the phenomenally rapid progress at Coastal Energy (LON:CEO) , by contrast.
Cheers,
Mark
In reply to davjo, post #8
The MRS reserves suggest a life of 6 years, whereas Shoats Creek more like 20 years
Sadly this isn't at all true. It's important to distinguish between SC oil and gas reserves. Most of the the reserves at SC are gas, and disclosed gas production is trivial (and has never been much). The SC gas reserves represent very much more than 20 years production at currently disclosed low gas production levels, and so on the rather arbitrary 'don't count anything over 20 yrs' basis a good fraction of the SC gas reserves could be seen as valueless.
I guess such development as will take place soon at SC will be targeted at oil reservoirs, so this situation of most of the reserves being gas but little gas production, rendering reserves producible after 20 yrs valueless, may well continue for a long time.
If SC is going to produce at the optimistically suggested levels, it'll need plenty of development, and the time won't be right to sell it for years to come. It's fine to think about it's value for the purposes of valuing the shares, but to think of actually selling it soon doesn't seem optimal. Now should be the time to be putting cash into developing it, rather than thinking of selling it.
In reply to sirlurkalot, post #10
Most of the the reserves at SC are gas
Depends how you look at it. According to the April 2011 reserves report…1P = 37:63 oil:gas. 2P = 52:48 oil:gas. I thought we generally did our sums on 2Ps?
disclosed gas production is trivial (and has never been much). The SC gas reserves represent very much more than 20 years production at currently disclosed low gas production levels, and so on the rather arbitrary 'don't count anything over 20 yrs' basis a good fraction of the SC gas reserves could be seen as valueless.
Yes, reported gas production to date is trivial but oil isn’t exactly gushing either. The point being, we just don’t know what the production prospects are and haven‘t got the faintest idea what the actual future gas/oil mix will be…such uncertainties emphasised by Marben. Certainly there’s an incentive to produce gas because of its richness/lumpy premium but we can’t tell whether in doing so restricts the production of oil. Frustrating though it is, we remain in the dark.
My comment relating to the MRS sale was simply to highlight the fact that even modest assets can fetch surprisingly good prices. I absolutely agree that now is not the optimal time to sell the US assets, other than perhaps Alta Loma if an MRS style price ($20m?) can be achieved…anything to stave off an equity raise. In my view, AEX should be hunkering down, committing cash only to delivering Kilwani gas and developing SC. Nyuni needs to be farmed out for a free carry. I guess the new CEO, what with his Sibir experience, has been employed to proceed roughly along these lines, outing value for shareholders.