Austin Exploration’s Pathfinder Project economic in low oil price environment

Published at Sep 19, 2016, in Energy

Austin Exploration Limited (ASX:AKK) has announced project economics from its flagship Pathfinder property in Florence, Colorado.

With the prolonged downturn in the price of oil, currently hovering around the $40-50 per barrel range, many oil fields in North America are no longer economic to drill.

This is due to the high costs associated with exploration, particularly where the oil formations are found in tight rocks that require long horizontal well bores to be drilled and hydraulically fractured.

The 100% owned Pathfinder acreage sits directly above the Pierre formation, which is a naturally fractured shale, where oil is typically discovered at shallow depths ranging from 2000ft and 4000ft.

Due to the geology horizontal drilling and hydraulic fracking is not required to access the oil, reducing the costs of the overall project.

To aid in further reducing operating costs, AKK has secured a comprehensive drill rig fleet including all required machinery and equipment to allow AKK to manage drilling operations internally.

As a result, AKK has developed a drilling program that could see the Pierre wells drilled for US$500k, making the Pierre project economical at $40+ per barrel.

AKK is currently drilling a three well program production from the Pierre shale, with the first two wells having encountered hydrocarbons. As the drilling program matures, AKK expects costs to be further reduced, improving the project economics.

The Pathfinder project contains several hydrocarbon bearing formations ranging in depth from 2000ft to 7000ft, with potential for oil and gas production. Production from similar formations has been witnessed in the area throughout the DJ Basin in Colorado.

Adjacent to the Pathfinder project is the West of the Florence oil field that has produced more than 15 million barrels from the Pierre formation.

The chart below outlines the economics of the Pierre well:

akk

The chart above shows the low production case of $40 per barrel, US$500,000 per well and how Pierre is set to be paid off in 9 months.

Should oil prices recover to $60 per barrel, in a high production case the internal rates of return could go as high as 380%.

These results are based on estimates from AKK and a potential oil price. There is no guarantee the oil price will improve to the estimates laid out in the chart and are a best case scenario. If you are considering this company for your investment portfolio, seek professional financial advice.

Wells in Pierre are known for their long producing periods with the average being 20+ years and one well having been in production for 108 years.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of Longhou Capital Markets Pty Ltd (AFSL No. 292464). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

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