Shareholders in Aurora Oil & Gas Limited (ASX: AUT) got a big reward today from the $1.84 billion takeover offer from Canadian company Baytex Energy Corporation (NYSE: BTE).
Having just written about the company several days ago, the sudden takeover offer is amazing to read. The oil and gas producer in the resource rich Eagle Ford shale oil region in Texas released its quarterly update in late January and forecast guidance of a 47% increase in production for FY2014.
I wrote that the company was going to have a bullish year, but it turned out you didn't have to wait that long. It seems now that other companies were also watching the change of events and decided to pounce.
The share price has shot up to the takeover offer of $4.10 a share, up in morning trading 55% to around $4.07.
The company has about 22,000 acres in the region, most of it owned through a joint venture (JV) with Marathon Oil Corporation (NYSE: MRO), a US$22.1 billion energy producer and main operator of the JV.
Baytex Energy's CEO James Bowzer said, "Baytex will acquire premier acreage in the core of the Eagle Ford, one of the leading shale oil plays in the U.S. The acquisition is an excellent fit with our existing business model and positions Baytex in another world-class oil resource play."
Among the reasons Baytex gave for acquiring Aurora Oil and Gas, it said that Aurora has a substantial inventory of potential well locations to support future production growth, and that its JV partner Marathon Oil has a strong track record of driving leading-well performance, reducing costs and growing its resource base.
Location, capacity and performance capability made Aurora so attractive. Aurora's board is recommending the offer to its shareholders for their final approval by vote.
To find out what other Australian companies are operating in the Eagle Ford region in Texas and what potential they may have, you can look at such stocks as Sundance Energy Australia Ltd (ASX: SEA), Lonestar Resources Ltd (ASX: LNR) and Strike Energy Ltd (ASX: STX).
Foolish takeaway
This is a great example of how simple stock picking can pay off, but investors need to read up on these other stocks to see what assets and current production they have before making any quick decisions. You don't want to practice the science of "nearology"- judging value based solely on being near a successful resource area – and jumping into speculative positions.
Aurora Oil and Gas does show that waiting for real and sustainable production to occur before considering an investment has the potential to pay off. Even without the takeover offer, the company's expansion would have increased earnings and the share price would have appreciated appropriately.
