By Barry FitzGerald
Minor ASX-listed companies in the American market are attracting attention.
A WHOLE bunch of ASX-listed juniors headed off to the US some years back to make their fortune as gas producers. It was meant to be easy money, given the rise in gas prices to record levels and the ease of getting onshore gas fields into production.
But the rise and rise of unconventional sources of gas (such as shale) has turned the US market on its ear. There is now more gas than they know what to do with, sending prices crashing from the record $US14 ($A15) a thousand cubic feet of gas (mcf) back to a struggle-town rate of $US4-$5 a mcf.
It's a different story with oil. Those that have made onshore US oil their main focus are doing nicely. Oil too is well off its pre-global financial crisis highs. But it looks like sticking at about its current level of $US75 a barrel for some time yet.
At its current price, oil can be a high-margin business for a junior operating in the midwest of the US. Assuming 100 per cent ownership of their oil leases, they can be netting about $US50 a barrel after paying the local rancher his 20 per cent share of the wellhead action.
That's pretty much the margin the big boys of the industry get for their production, which can be measured in tens of thousands of barrels a day from an offshore oilfield with all the attendant risks.
For the juniors in the US midwest, we're talking production of about 500 barrels of oil a day (bopd) as being a good outcome. But there is little risk, and they don't have monster market valuations they need to justify.
All that is by way of background as to why believers in oil prices sticking are starting to trawl through the ASX juniors active in the US, looking for ones weighted to oil, not gas.
AusTex Oil (ASX: AOK) is one that fits the bill. Only floated a couple of years ago, AusTex is working its way towards becoming a 500 bopd by the end of the year and a 1000 bopd producer within 12 months from its Oklahoma and Kansas leases.
It's now approaching the 300 bopd level at which it will be fully funded in the sense that it will be covering its costs as well as having the cash flow to fund the exploration required to get to the 1000 bopd target.
There are two distinct parts to its business. In Oklahoma it is all about redeveloping old wells and drilling new wells inside existing oilfields. The idea is to drill two wells a month that can each come on at anything from 20-40 bopd after the application of some up to date technology. It might be small stuff, but it is low risk and low cost.
The other part of the business is in Kansas where all of the modern exploration tools are being applied to the hunt for new fields where drilling by others in surrounding leases is coming up with wells that are flowing at 500 bopd.
As it is now, AusTex holds 7.4 million barrels of proved and probable oil equivalent reserves (95 per cent of its revenue is from oil), with a new estimate likely to be released in September.
The North American market currently values proved and probable onshore oil reserves at somewhere between $US12-$US15 a barrel in the ground. So that would be something upwards of $US88 million for AusTex's 7.4 million barrels of oil equivalent.
But in this market, valuations stick pretty closely to the historic cost of the investment made to establish the business, which in AusTex's case is about $A30 million. That valuation gap is why US groups have been sniffing around.
Assuming it gets to its 500 bopd target by the end of the year, there is a real chance that AusTex could get some takeover attention in the new year. On Friday the stock closed 1 per cent higher at 14¢ for a market value of $28 million.
GARIMPEIRO has mentioned Hawkley Oil & Gas Limited (ASX: HOG) and its gas/condensate (light oil) ambitions in Ukraine's Dnieper Donets basin and now notes that the shares popped 1.5¢ higher on Friday to 13.5¢.
The price rise was in anticipation of some decent results to come from the Sorochynska-201 well in the days ahead. At last report the well was approaching its target depth and the company will soon be in a position to test the target zone.
The well's target zone averaged a daily flow, over two years, of 4.1 million cubic feet of gas and 150 barrels of condensate in a nearby well that was shut in because of mechanical issues by previous operators.
Should this well match that sort of flow, Hawkley could well be on its way to something bigger than its current market capitalisation suggests, given gas prices in Ukraine are north of $US7 a thousand cubic feet.
COULD a four-way tussle be unfolding for control of Exco Resources (ASX: EXS) - or at least its Cloncurry copper project (CCP)?
As previously mentioned in Garimpeiro, the pot first got stirred when Exco raised $4.9 million from the placement of 5 per cent of its shares with the Singapore-based, and Chinese-connected, Sin-Tang Development.
Sin-Tang also got an agreement under which it could negotiate to acquire an interest in the CCP, as well as provide debt financing for its development.
The Sin-Tang deal cut across talks that Exco has had with Xstrata in the last five years about ore from a development of the CCP going to Xstrata's Ernest Henry treatment plant. So we now have Sin-Tang and Xstrata on high alert from here on in. The same can be said for Exco's biggest shareholder with its 20 per cent holding and its own big time copper ambitions in the region, Ivanhoe Australia.
The fourth player in all this has yet to declare their hand.
But based on volumes in Exco shares last week, we could be seeing a substantial shareholder notice early this week. We're told we will all find interesting the name behind last week's buying.