Australian investors with an appetite for U.S. oil and gas plays have enjoyed a veritable financial feast on the Australian Securities Exchange (ASX) from two standout stocks starring at the top of the annual and quarterly performance charts.
The industry may just be beginning to raise its head above the parapet, but green shoots have given rise to a fully-fledged recovery in the Australian oil and gas sector with four straight quarters of growth culminating in 17% market cap growth in the year to Jan. 31.
The return of sunnier dispositions, as revealed by Australian Oil & Gas Research, was characteristically led by the $6 billion cap top-tier companies, which grew 16% during this period, but the real stock stars were the next tier First Division players (market cap greater than $100 million) which expanded by a fist-pumping 63%.
The star performer for the 12-month period was Newcastle-based Freedom Oil & Gas (ASX: FDM) led by Executive Chairman and CEO Michael Yeager, the former petroleum boss of BHP Billiton Ltd. (NYSE: BHP). The company holds a 100% interest in 8,000 acres of undeveloped land in the Eagle Ford Shale play in South Texas.
Freedom’s share price spiked 271% to 32.5c (33.5c at press time) in the 12 months to Jan. 31 on the back of a spectacular fourth quarter and better-than-expected performance from its Eagle Ford drilling program. For example, the company’s Eagle Ford wells, the Wilson B-1 and Wilson B-2, averaged about 1,250 barrels of oil equivalent a day delivering crude and NGL.
Another company that put a spring in shareholders’ steps, notably in the three months to Jan. 31, was Byron Energy Ltd. (ASX: BYE). The Melbourne-based operator with Gulf of Mexico focused assets has a smart seismic strategy that reaped a bounty. Its SM 71 F2 appraisal well intersected four high-quality oil bearing sands with a combined net oil pay of 58 m (190 ft).
The well, offshore Louisiana, is expected to significantly increase 1P and 2P reserves in Byron’s next annual review with first anticipated production of up to 6,000 plus barrels of oil per day from the shallow-water SM 71 F1, F2 and F3 wells imminent at press time. Byron’s performance had the market purring as its stock soared 148% to 31c in the three months to Jan. 31 (29c at press time).
Byron’s U.S.-born CEO Maynard Smith said success was “no flash in the pan” in an area where the likes of Transco, Tenneco (Smith’s “alma mater”) and Royal Dutch Shell Plc (NYSE: RDS.A) had operated, with the latter producing 3.9 million barrels of oil before it had sold its blocks to Apache Corp. (NYSE: APA).
“We assembled a team boasting individuals with up to 40 years of experience working in the Gulf,” Smith said. “Our play features a very complicated salt dome where some big players produced 4-5 million barrels of oil. We discovered a big anomaly deeply dipping and it’s within 600 ft of where others drilled but were, perhaps, a little too hung up on horizontal. We drilled a little deeper and intersected perfectly clean oil-bearing sands in shallow water which ranks as a very significant discovery.”
Smith said Byron had focused its energies on the U.S. as the playing fields were far more level than in Australia.
“The problem in Australia is that all the really good acreage is tied up by the big players and the little guys tend to mess around on the fringes of the basins. In the U.S. anyone can compete,” he said. “You put your number in an envelope and bid for blocks and if your bid is higher than Shell’s, you win it with no questions or negotiations. Anyone can compete and if you know the system and how to work it you can do well. There’s no disadvantage to being small.”