MARKETS SPECTATOR: Dipping in for Texas tea

Sundance Energy Australia has sold $48 million of stock predominantly to Australian-based fund managers and wealthy families to fund the exploitation of oil and gas in Texas and Oklahoma.

The Norwood, South Australia-based company sold at about 86 cents a share, a 12 per cent discount to the stock’s closing price on May 28, according to its chairman Mike Hannell. At 1546 AEST the stock was trading at 94 cents, down 3 cents, or 3.1 per cent from its May 28 closing price of 97 cents. The stock has gained 22 per cent this year.

Euroz Securities, which was the sold lead manager of Sundance’s initial public offering, managed the stock sale along with Canaccord Genuity.

Sundance managing director Eric McCrady told Markets Spectator that its Texas field, Eagle Ford, may hold between 370,000 and 520,000 barrels of oil equivalent. The wells there have had a 95 per cent success rate and the oil is extracted by horizontal drilling and fracture stimulation. Each well costs between $US8 million and $US9 million.

McCrady says its Oklahoma prospect has two fields that have a 70 per cent success rate and may hold between 200,000 to 300,000 barrels of oil equivalent. Each well in that state costs Sundance between $US3 million and $US4 million.

Global oil markets are perhaps a touch overheated because of perceived geopolitical risk in the Middle East and over supply, says McCrady. He expects West Texas Intermediate crude to trade at between $US88 to $US97 a barrel for the next 12 months. Light Louisiana Sweet Crude may trade between $US6 and $US8 or higher.

West Texas closed at $US93.73 on the New York Mercantile Exchange, up US12 cents and has gained 2.1 per cent this year, according to Bloomberg data. Light Louisiana Sweet Crude Oil was up 23 cents to $US102.11 a barrel. It has slipped 8.2 per cent this year, according to Bloomberg.

Sundance also has fields in North Dakota and Colorado and its total reserves are estimated at 55 million barrels of oil equivalent.