As an ASX-listed company that operates primarily in America, Aurora Oil & Gas Limited (ASX: AUT) poses an interesting opportunity for Australian investors. Here are three important reasons why Aurora Oil & Gas shares could power your portfolio in the years to come.
1. A geographic advantage
This Perth-headquartered exploration and production company operates primarily in the Eagle Ford shale – by some measures the world’s largest oil and gas development — located near Dallas, Texas.
Why is this important? Because the Eagle Ford shale is not only large but widely recognized to be among the best shale plays in the U.S. The play’s oil and gas reserves are particularly rich and the specific geological qualities of the local shale (that make for comparatively easy hydraulic fracking) contribute to a lower cost of production. The region is also located close to the ports of the Texas coast.
No wonder, then, that in recent years major E&P companies have been clambering to develop sites in the Eagle Ford. In 2011, Reuters reported that, “Eagle Ford output has risen from nil two years ago to 71,000 barrels of oil per day, and will leap fivefold by 2015…”
Certainly it is a mark in Aurora’s favor to be positioned in such a desirable location –which is itself situated in one of the world’s largest energy markets. Namely, the famously gas-guzzling, natural gas-craving United States of America.
2. Alluring assets and rising revenue
Making Aurora even more attractive to investors are the company’s considerable proven reserves: more than 80 million barrels of oil equivalent. And the vast majority of these reserves have not yet been developed.
The company has increased production substantially in recent years, with 104 new wells producing year to date, and this shows in Aurora’s top line. Between Q3 of 2011 and Q3 2012, the company’s revenues grew 280% — from $23.2 million to $85.5 million. Production costs rose only slightly over this same period.
What might a company with this sort of potential be worth? The answer is: possibly more than the value assigned by the market today. Just now, Aurora shares are trading for a bit more than 10 times forward earnings.
3. A strong balance sheet and insider ownership
Finally, Aurora Oil & Gas is well capitalized, with $137 million in cash and a further $150 million available in an undrawn credit facility. Insiders own 7% of the shares, so it seems management is invested in the success of the company.
Of course, CEO Douglas Brooks has only been in the chair since October of 2012, but he has 30 years’ experience in the energy industry and Aurora’s founder, Jonathan Stewart, remains involved as Executive Chairman.
Foolish Bottom Line
In summary, Aurora is a well positioned pure play on oil and gas in one of the world’s choicest regions and the company should be able to grow production and revenue for at least the next several years. Of course, investors will want to do their own due diligence before digging into shares.
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Motley Fool contributor Catherine Baab-Muguira has no financial interest in any of the companies mentioned in this article.The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.