The Eagle Ford Asset

Key points:

  • Immediate cashflow (recent production ~ 400+ boepd)
  • Low risk appraisal and development opportunities with short term cashflow
  • Manageable costs (~US$7m/well), experienced partner in MHR
  • Flexible funding opportunities (reserve based lending potential)
  • Upside for production and reserves
  • Potential upside from Pearsall Shale and Austin Chalk and down-spacing of wells

New Standard has entered an option agreement with Magnum Hunter to purchase 5,182 net acres in Atascosa County, Texas, which is positioned in the higher value, volatile oil window within the regional Eagle Ford shale play.

Pearsall Formation thickness distribution

Pearsall Formation thickness distribution

The Eagle Ford acreage contains five existing production wells, which have been drilled between 2010 and 2013, which are currently producing approximately 300 – 400 barrels of oil equivalent per day and generating revenue that will provide immediate monthly cash flow to the company.

Importantly, this is in the oil window (95%+ revenue from oil and NGLs), so revenue is significantly higher than in the dry gas sections of the Eagle Ford.

A large portion of the acreage is currently undeveloped and up to fifty-five additional well locations have been identified for development drilling, providing low risk, low cost appraisal and development opportunities with short term cash flow benefits for New Standard. Upon closing, New Standard plans to drill two initial wells in early 2014.

The transaction will also secure access to the Pearsall Formation below the Eagle Ford, providing significant upside potential. The Pearsall was actually recognised before the Eagle Ford was developed but to date has largely been overlooked. There are now a number of companies focusing on this opportunity in the region with some impressive initial results.

Well locations within the Atascosa permit area

Well locations within the Atascosa permit area

In addition, the use of closer drill spacings and zipper fracs is tilting drilling and production economics even further in investors’ favour.

 

 

 

 

 

 

 

Consideration:

  • New Standard has option to acquire Eagle Ford acreage for US$15 million cash and A$9.5 million in NSE stock (65.65 million shares at 15.4c/share) to Magnum Hunter, subject to shareholder approval
    • Acreage can be valued on a per acre basis, based on comparative deals
      • NSE headline purchase price: US$5,300 per acre (including production) US$1,500 – $2,000 per acre (undeveloped equivalent)
      • Compares very favourably with previous Eagle Ford transactions
  • Upon closing New Standard will also make a payment of A$3 million cash spread over 10 months to the Outback Energy Vendors who held an option over the acreage, plus up to 45 million performance shares (at 16/c/share) dependent on the performance of four wells in 2014
    • The Success Shares will be 100% at risk and will only be awarded upon achievement of performance hurdles based on average Estimated Ultimate Recovery (EUR) over four wells to be drilled in 2014.
    • The wells’ performance will be a once off measurement and will be assessed by an independent reserves certifier approved and appointed by New Standard with the hurdles tied to the EURs that should provide attractive IRRs for New Standard.
  • New Standard and Magnum Hunter are in the process of negotiating a revolving reserves based lending facility, and expect to have a facility in place for US$15-$20 million with additional future capacity up to US$50 million, to use towards the acquisition and future US well costs

Additional well locations Atascosa permit area – Peeler Ranch prospect

 

 

 

 

 

 

 

 

 

 

 

 

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