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AEZ Catalysts Starting To Roll

|Includes:American Oil & Gas, Inc. (AOIX)
  • Profile of a Nascent Bakken Player:
    • 68,000 net acres in Williams (Goliath Project) and Dunn counties, North Dakota, just west of the Neeson Anticline, in an area which would essentially be the north east corner of BEXP’s Rough Rider area.  Running room for 150+ Bakken and 150+ Three Forks wells.
    • Focus is on Bakken / Three Forks and have sold down interests in Wyoming recently towards this end.
    • Production as of 1Q10: 171 BOEpd, so it’s still tiny, but given early results should grow rapidly.
  • Balance Sheet:
    • $70 mm cash
    • No debt
  • Results To Date:(all three AEZ operated)
    • Tong Trust 1-25 H (Goliath area) (25% working interest) - 25 stage frac
      • IP 1,421 BOEpd
      • 7 day average of 962 BOEpd
      • 30 day average of 652 BOEpd
    • Ron Viall 1-25H – (Goliath area) – 30 stage frac, long lateral
      • IP 2,844 BOEpd (95% working interest)
      • 7 day average 1,748 BOEpd – fairly respectable given the initial rate.
    • Summerfield 15-15H (Dunn County) – 14 stage frac, short lateral, IP 2,799 BOEpd (33% WI)
  • Plan Going Forward:
    • 2 rig continuous program
    • Next 2 wells set for late June and Mid July completions. Both will be long lateral completions (9,600′) with 30+ frac stages, with high working interests.
    • After these two wells expect another 5 wells before year end.
    • Planning at least 1 Three Forks well on their acreage during 2010.
  • Valuation:
    • P/CF 8.9x in 2011, not at all unreasonable for a what is essentially a Bakken startup.
    • For point of reference, BEXP until recently traded as high as 21x 2011 numbers and it is much further down the learning / development curve.
    • KOG trades at 5.8x 2011 numbers but honestly has not yet produced the higher rate and presumable higher return wells as they just have assets in different zip codes of the Bakken. 
    • $3,700 / acre. Not exactly cheap but you’d have trouble buying a contiguous block of acreage this size and in this part of the play for less than $4,000 to $5,000 / acre if recent lease sales are a guide.
  • Nutshell: Results to date show consistency but it is still early in the lift of this one. My sense is that this no debt, cash rich, player holds good real estate in the Bakken and that the name will be catalyst driven through the remainder of 2010 and beyond as it works to prove up its large (for it’s size) acreage position. I missed the initial run up in this name and had comment that I would work it up following 1Q earnings. Yesterday I added an initial position in the ZLT. While I do believe the name will be catalyst driven I would also add that AEZ would be a suitable takeout candidate as larger players look to add scale in this oily onshore play. This brief will be book marked on the Reports tab.


Disclosure: Long AEZ
Stocks: AOIX