The Speculator

PORTFOLIO POINT: Here’s relatively low-risk Australian-owned oil and gas developer with operations in the US and it’s pregnant with an entitlement to a fully underwritten capital raising.

Investors who become shareholders in AusTex Oil (AOK) by Monday, April 19, will be entitled to take up one new share at 16¢ for every five held to raise about $5 million in new capital after costs.

Lots of companies have put the corporate hand out recently for more cash and some shareholders are becoming increasingly cautious about reaching for their wallets.

In this particular case, I would rate the risks as comparatively low because of the company’s growing production from known oil and gas bearing ground in the US state of Oklahoma combined with higher risk/higher reward opportunities in neighbouring Kansas.

AusTex listed on the ASX in January 2008 after raising $20 million. It is focused developing oil and gas leases in Oklahoma and Kansas. Since listing, it has lifted its lease interests in those states from 1000 acres to 69,000 acres.

At a current price of 16¢, the company’s 169,425,000 shares give it a market capitalisation of $27.1 million backed by remaining cash of $3.5 million, no debt, and mid-range or 2P reserves of seven million barrels of oil equivalent in proven producing leases in Oklahoma alone.

Source: AusTex

While results for the latest March quarter are yet to be released, in the December quarter net revenue doubled over the September quarter to $356,000, although the net operating deficit for the nine months to December totalled $5.15 million, due to spending more than $3.5 million on exploration and development.

According to a company presentation in late February, current gross production was running at 385 barrels of oil per day (bopd) and 570,000 cubic feet of gas per day. Net due to AOK amounted to 200 bopd and 420,000 cubic feet of gas per day.

With oil at $US70 a barrel and gas at $US4,000 cubic feet, revenue to AOK was estimated at $US370,000 a month (after $US20 a barrel royalty and lifting costs) and a monthly general administration cost of $US200,000.

The company claims it has multiple development well opportunities on more than 50 locations on existing leases in Oklahoma, where it is the operator with five producing wells by the end of December, another brought on at the end of January, and a seventh being completed in the March quarter.

Through AOK’s wholly owned subsidiary International Energy Corporation (IEC), AusTex holds a 10-year exclusive marketing agreement for the State of Oklahoma for the patented Radial Jet Enhancement Technology. This enables a water injection hose to be thrust down a drill pipe and horizontally directed up to 300 feet into reservoir sands to stimulate hydrocarbon flows. AusTex, as operator, may charge any third-party buyer of the technology up to $US25,000 per well, while AusTex pays the Texan-based owner of the technology $US4000 per well.

In Kansas, the company’s lease interests are held in partnership with Castle Resources, the Kansas operator of the well-enhancement technology. The technology is ultimately controlled by Houston-based investment banker Richard Adrey, who is also a non-executive director of AusTex.

He joins Dr Peter Powers (non-executive chairman and a former managing-director of Ampolex Ltd before it was taken over by Mobil) and managing director Daniel Lansky, a former Queensland police detective who in the 1990s completed tertiary studies at Griffith University and became a senior business development executive.

Remaining non-executive directors are geophysicist Patricia Kay Phillips and author and finance journalist Trevor “Pierpont” Sykes. Between them, directors hold about 18% of the stock.

AusTex shares will trade ex-rights from April 13, with a prospectus sent to eligible shareholders (registered by April 19) on April 23. The one-for-five issue at 16¢ comes with one attaching option for every two shares subscribed for exercisable at 25¢ by December 1, 2011. The issue is fully underwritten by Sydney’s Novis Capital.

One of the founding shareholders in AusTex was Sydney’s Longreach Oil, which once held about eight million shares. Longreach has been reluctantly selling down due to its own cash needs and in March ceased to be a substantial shareholder. That selling has undoubtedly dampened AusTex’s share price which has retreated despite its progress from a year’s high of 22¢.

A research note prepared by Sydney’s Aegis Equity Research on December 21 determined a value of 30–36¢ for AusTex shares, which were then trading at 17¢.

Will the Speculator buy in?

I’ll wait until next week to decide that, since readers will note that I am already fairly highly geared at the moment anyway.

nThe Speculator portfolio, as at April 6, 2010
Company	ASX	No of shares	Bought	Purchase price	Current price	Current value
Cortona Resources options ex. 20¢ by 31/01/2012	CRCO	50,000	31/12/09	$0.053 avge	$0.064	$3,200
A1 Minerals	AAM	20,000	31/12/09*	$0.370	$0.240	$4,800
Image Resources	IMA	8,000	31/12/09*	$0.830	$0.735	$5,880
Golden Gate Petroleum op ex. 8¢ by 31/8/2012	GGPO	6,665	31/12/09*	$0.017	$0.016	$107
Viralytics	VLA	50,000	31/12/09*	$0.037	$0.056	$2,800
Trafford Resources	TRF	20,000	31/12/09*	$0.760	$0.620	$12,400
OBJ Limited	OBJ	100,000	31/12/09*	$0.029	$0.036	$3,600
OBJ options ex. 1¢ by 31/12/2010	OBJO	11,111	21/01/10	Free	$0.024	$267
Beacon Minerals	BCN	200,000	13/01/10	$0.024	$0.028	$5,600
Quickstep Holdings	QHL	20,000	14/01/10	$0.520	$0.340	$6,800
Golden Gate Petroleum	GGP	100,000	25/01/10	$0.040	$0.036	$3,600
Robust Resources	ROL	3,000	09/02/10	$1.15 avge	$2.110	$6,330
Scotgold Resources	SGZ	20,000	16/02/10	$0.105	$0.110	$2,200
Coalworks	CWK	10,000	09/03/10	$0.275	$0.400	$4,000
Queensland Mining Group	QMN	50,000	23/03/10	$0.125	$0.135	$6,750
Total value of portfolio						$68,333
Owe the bank						-$30,127
Total						$38,206
Portfolio change since January 4, 2010 (started with $40,000)						–4.49%
All Ordinaries change since January 4, 2010 (then 4889.8)						1.72%
* Shares held from last year. They are carried at their December 31, 2009, closing price.

Central Petroleum Ltd (CTP) has featured in this column in the past as it looked for oil and gas over the Amadeus and Pedirka basins that straddle the north of South Australia and the lower Northern Territory. Added to the portfolio at 16¢ on March 10, 2008, I watched them go to 26.5¢, then fall away with so many other stocks by the end of the year to about half their cost.

The company is still optimistic and traded this year between a high of 22.3¢ and a low of 7¢, with the shares priced at 8.1¢ “cum” rights trading due to start this week. The company is seeking to raise $22.6 million in a one-for-two offer at 7.5¢ of approximately 300 million new shares through lead manager and underwriter Patersons Securities Ltd.

We have 25,000 Cortona options in our portfolio exercisable at 20¢ by January 31, 2012. We added them at an average price of 4.2¢ in January as the company pressed ahead with the reopening of the Dargue’s Reef workings at Major’s Creek, about 80 kilometres southeast of Canberra.

Late this week they’re taking a press party down to the old mine site. So, in the expectation they’ll have something encouraging to report, I’ve doubled our holding to 50,000 options at an average price of 5.3¢ each and hope I return to Sydney intact on Friday night.

David Haselhurst writes a monthly column for Money magazine. Please note that he is not able to provide personal replies to emails.