Aegis Equities Research has initiated coverage of US-focused oil & gas producer AusTex Oil (ASX code: AOK).
"AOK is an Australian listed US Midwest oil and gas producer and explorer focused on building a solid foundation within Oklahoma and exploring for higher risk/higher reward opportunities in Kansas."
"The company had a steep learning curve in its early years; however, the lessons learnt have benefited the company in securing key personnel and acreage all of which is now yielding positive results."
"AOK holds around 69,000 acres of lease interests in Oklahoma and Kansas, with producing assets in both regions. Current production is at around 90bopd; however, this is expected to rise significantly as the company proceeds with its development plans."
"In recent months AOK has reported multiple successful wells in Oklahoma within its Lancaster Lease group and the company is continuing to drill step out wells."
"Drilling costs within AOK's Oklahoman interests are relatively inexpensive, while drilling and development of wells is speedy with the company expected to drill and complete ~6 wells per quarter."
"Our DCF valuation centres around AOK’s base oil production business at the company's Oklahoman leases. We consider valuing this business as prudent, given the region's known production capability and lower inherent risk. We have determined the valuation to be $0.30/share."
Investors should note the valuation is based on a number of assumptions including success in the company's forward drilling program. Additional “blue sky” opportunities exist through wildcat drilling in Kansas and we consider these to be in addition to our base case valuation scenario."
Disclosure: The author holds no positions in the company