Aurora Oil & Gas Ltd. (AUT), an Australian company developing shale holdings in Texas, said the lowest U.S. natural-gas prices in a decade have created opportunities for further deals in the Eagle Ford region.
“With the poor natural gas price in North America there are a lot of capital-constrained companies over there,” Jon Stewart, chief executive officer of the Perth-based company, said in a telephone interview today. “The volume of opportunities coming across our desk has really escalated.”
Aurora is interested in more purchases and partnerships after a A$104 million ($109 million) bid announced today to acquire Eureka Energy Ltd. (EKA), another Australian explorer active in the Eagle Ford, Stewart said. A drop in U.S. natural-gas prices has led some shale producers to consider asset sales to cut debt or seek partners to develop oil assets, he said.
“The growth path for Aurora is M&A,” David Wall, an analyst for Hartleys Ltd. in Perth, said by phone today. “And there are a lot of opportunities for Australian companies.”
Natural gas prices have declined 27 percent in New York this year after falling 32 percent in 2011. Gas futures earlier this month fell below $2 per million British thermal units, the lowest level in a decade, and traded at $2.183 today.
The price decline, caused by a glut of the fuel from onshore North American wells, has prompted some U.S. producers, such as Chesapeake Energy Corp. to shift to higher-profit oil.
“We expect gas prices to remain subdued through this year and next year,” Stewart said. “But it’s unsustainable for gas prices to remain as low as they presently are because there is little if any incentive for companies to drill gas wells.”
Aurora, which has a stake in more than 76,000 acres in the Eagle Ford shale formation, has said it plans to more than double the number of wells drilled in the area to about 150 this year. The company, developing shale holdings with Marathon Oil Corp. (MRO) as operator, is generating more than 95 percent of its revenue from liquids such as oil, Stewart said today.
The Eagle Ford is a formation that lies under a 50-by-400 mile swath of South Texas, according to the Railroad Commission, which regulates oil and gas production in the state.
Aurora has $210 million in cash, and $35 million in undrawn debt, which can increase as the company boosts the size of its reserves, according to Stewart.
Eureka surged 44 percent to 47.5 Australian cents a share in Sydney to the highest in more than five years, surpassing the takeover offer from Aurora. Aurora offered 45 cents a share in cash for the shares of Eureka it doesn’t already own, 36 percent more than its closing price of 33 cents on April 27. Aurora currently holds 2.79 percent of Eureka.
“We’re just at the start of the process,” Stewart said. “This is an attractive offer at a significant premium.”
Aurora shares rose 0.7 percent to A$4.15 at the close of trade in Sydney, valuing the company at about A$1.7 billion.
The company may need to increase its offer for Eureka by about A$10 million, Hartleys’ Wall said.
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