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(Editors' note: The Toronto Stock Exchange listing of Aurora Oil & Gas, AEF.TO, offers substantially better liquidity than AAGLF)

Aurora Oil & Gas Limited (OTCPK:AAGLF) is a Perth- and Houston-based oil and liquids company with operations in the Eagle Ford Shale trend of South Texas. Aurora has 88,800 gross (22,000 net) acres in the "tri-county" area of Karnes, Live Oak and Atascosa Counties, Texas. The company's largest asset in the Eagle Ford is Sugarkane Field which is operated by Marathon Oil (MRO).

Achieving the Same Amount of Growth with Less Capital

Aurora Oil & Gas' recent 2014 CAPEX and production guidance headline supports the thesis that Eagle Ford operators will be able to produce more with less capital through drilling and completion efficiencies like pad drilling, batch completions, and other techniques.

From 2012 to 2013, Aurora added 3.6 MMBOE to its gross cumulative production volumes by spending between $490 million and $510 million. What's more attractive is that from 2013 to 2014, Aurora is expecting to add an additional 3.6 MMBOE to its gross cumulative production volumes by spending only $455 million to $495 million. Said another way: Aurora is achieving the same amount of growth with less capital.

Putting Aurora's 2014 growth projections into context, the company expects to increase production by 47% compared to the mid-point of its 2013 production guidance. This equates to estimated 2014 gross production between 10.6 MMBOE to 11.7 MMBOE (7.8 MMBOE to 8.6 MMBOE net), or 2014 gross average daily production between 29 MBOEPD to 32 MBOEPD (21.5 MBOEPD to 23.5 MBOEPD net).

OAG360 notes Aurora exited the year producing an estimated 26.5 MBOEPD gross (19.5 MBOEPD net) positively positioning the company for growth in the early part of 2014.

Asset Intensity

This provides a great segue to discuss Aurora's Asset Intensity metric, or the estimated amount of a company's cash flow from operations that is needed to be reinvested to keep production flat. According to EnerCom's E&P database, as of January 3, 2014, Aurora's Asset Intensity was 16% meaning the company can use 84% of its remaining cash flow to grow production and reserves.

Other Eagle Ford companies like Sanchez Energy, Penn Virginia, Rosetta Resources, and SM Energy, have Asset Intensity metrics of 35%, 434%, 21%, and 49%, respectively.

Aurora's 2014 Drill Plan

Aurora plans to spud between 49 and 53 net wells in 2014, with three wells being spud on AEF's operated acreage representing a total spud increase of 13% over 2013. The entire 2014 plan is funded by existing cash, operating cash flows and availability under its existing credit facility. EBITDAX is expected to exceed capital expenditures based on the development plan and assumptions of realized commodity prices.

An exciting year for Aurora was anticipated after Marathon Oil, Aurora's operating partner in the Eagle Ford, announced it will spend $2.3 billion on 2014 Eagle Ford operations, a 20% increase in spending from 2013 levels. Aurora believes more than half of MRO's budget will be allocated to the Sugarkane field. In accordance with MRO's Eagle Ford emphasis, Aurora will spend $368 million to $402 million of its 2014 guidance on non-operated Sugarkane properties. Management said the program is its largest non-operated plan to date, and the company has opted to scale back on operated activity in order to provide growth while maintaining a strong balance sheet.

(click to enlarge)Source: Aurora

Upcoming Catalysts for Future Growth at Aurora

Efficiencies. Operational efficiencies, including more net wells forecast at a lower net cost per lateral foot per well, are providing extra incentive for both companies. In its Q3'13 conference call, Aurora said AFEs were averaging $7.8 million per well with horizontals of approximately 5,400 feet. However, three new identified wells with longer laterals and more frac stages, including two that had already been drilled, are expected to cost $9.4 million for 7,800 foot laterals and 30 stages. The latter costs are expected to remain consistent, resulting in savings of approximately 17% per foot in comparison to initial expenditures.

Downspacing. MRO's downspacing program is also adding to future inventory. The current operational focus is on 40 to 60 acre spacing, including the drilling of a 30 acre pilot in 2014. Aurora currently estimates 800 gross proved well locations are on its non-operated acreage on 80 acre spacing. If the mid-point of MRO's program is applied, the inventory jumps to 1,280 gross locations.

Stacked Pay Zones. Management for both Aurora and Marathon say they intend to develop the Austin Chalk and Upper Eagle Ford. MRO said during its analyst day, "Beyond the Eagle Ford primary horizon, we've started to test the opportunity to co-develop the Lower Austin Chalk and Upper Eagle Ford directly with our primary Lower Eagle Ford development" and confirmed two successful pilot programs in the Austin Chalk. Additionally, Aurora discussed early Austin Chalk pilot results on its Q2'13 conference call saying the program is yielding rates up to 900 BOPD on 24-hour cast from various choke sizes. If the co-development program is lucrative, this could provide an additional level of inventory across Aurora's footprint.

Free Cash Flow Within Reach. Aurora says its high margin liquids production is driving rapid, consistent profitable growth. Coupled with the fact that completed well costs continue to decline, Aurora expects positive EBITDAX net of CAPEX by the second half of 2014, assuming realized commodity prices based on WTI at $90 per barrel, NGLs at $30 per barrel and natural gas at $3.50 per MMbtu.

OAG360 notes we discuss these future catalysts in more detail in our write-up titled, "What Marathon's Increased 2014 Eagle Ford Spending Means for Aurora Oil & Gas Limited."

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: Aurora Oil & Gas Limited: Achieving The Same Amount Of Growth With Less Capital