The Transaction

The Transaction

17-Feb-2017	What is the acquisition?
	Australis is acquiring interests in existing oil production, reserves and resources within an area that covers more than 120,000 net acres within the production defined core area of the Tuscaloosa Marine Shale (TMS) play in Louisiana and Mississippi for consideration of US$80 million. The acreage lies adjacent to Australis’ existing 19,000 net acre position in the TMS Core. The acquisition will make Australis the largest acreage holder in the oil-rich TMS core. The acreage includes producing wells (1,900 bbl/d net) and significant oil reserve potential. [Read more] The assets being acquired comprise 22,000 net core acres that are “Held By Production” (HBP), a further 40,000 net acres in the core and within formed (permitted) drilling production units. We intend to focus on the net acreage within these units to ensure leases near expiry are re-leased. The acquisition includes a further non unitised 60,000 net acres within the TMS Core area (non-focus core acres). Well oil productivity from the core area is consistent with or better than other established US onshore unconventional plays. [Read more] The working interests in producing wells being acquired provide Australis with immediate cashflow with minimal expenditure requirements. Production is 95% oil which is sold at a Louisiana Light Sweet crude marker (a premium to WTI). We see the potential for significant upside in oil production with large inventory of 215 potential future locations (based on 250 acre spacing and 8% recovery factors). This inventory is in addition to the 76 potnetial future well locations within Australis’ existing 19,000 net acres. The combined acreage position has been independently assessed, by Ryder Scott Company LP, to contain 5.0 million bbls of proved producing oil reserves (PDP) and 106 million bbls oil of 2C contingent resource. This 2C Contingent resource will convert to proved, probable and possible reserves upon the delivery of a development plan to produce the resource. Ryder Scott estimate the value of the PDP reserves being acquired at US$95 million (NPV10) based on the forward strip oil price as at the effective date of 1 February 2017 (US$55 – US$59 / bbl over the life of the production). The TMS is one of the few remaining undeveloped onshore shale plays in the US.

16-Feb-2017	Who is the seller and why is it selling?
	The vendor is TSX-listed Encana Corporation (TSX: ECA), a Canadian energy company with a market capitalisation of around CAD$16 billion (February 2017). *[Read more]* Encana included the following text in their announcement following the transaction ‘The transaction further tightens Encana’s portfolio and is consistent with the company’s focus on growing crude and condensate production from its core assets.’ Encana is primarily focused on producing natural gas, oil, and natural gas liquids (NGLs) in North America. Encana lists its core assets as the Eagle Ford, Permian, Duvernay and Montney unconventional shale plays.

15-Feb-2017	How did the acquisition come about? How has Australis ended up a major player in the Tuscaloosa Marine Shale (TMS)?
	Australis was formed by the former board, executives and founders of Aurora Oil & Gas Limited. Australis was formed in 2014 and in July 2016 listed on the ASX with two major asset positions, an initial acreage position in the TMS and exploration acreage in Portugal. Australis’ existing position in the TMS is 19,000 net acres (76 potential future net well locations). [Read more] Australis was approached by Encana regarding the opportunity to purchase this acreage. The acreage is adjacent to our existing holding in the core of the TMS, which we believe from the work we have done and the public data on well productivity and costs, to be a highly prospective unconventional oil play. The TMS is one of the few remaining undeveloped onshore US unconventional plays.

14-Feb-2017	What are the drivers behind Australis’ decision to enter into this transaction?
	This is a compelling investment opportunity to secure a high quality asset at a very attractive price which has significant upside and provides a platform for future growth of the company. It will transform Australis which will become the largest holder of acreage in the best part of the TMS. Australis was invited by Encana to bid for its assets. [Read more] The acreage is adjacent to our existing holding in the core of the TMS - an area we believe has productivity consistent with or better than other established US onshore unconventional plays. Data review on our acreage has shown better oil productivity results in comparison to the assets in the high quality Eagle Ford held by Aurora Oil & Gas, the company that the board and management were previously involved with. The acreage comes with a large inventory of potential future well locations, existing production and significant potential to increase reserves. Net production at the effective date of this acquisition is ~1,900 bbls/d, which provides Australis cashflow and increased funding flexibility. [Read more] Australis will be the operator of these assets, meaning we would have control over the core acreage position and importantly the decisions and timing of any capital expenditure for future development activities. Access to Technical & Operational Data Importantly as part of the acquisition Australis management and staff have access to Encana’s technical and operational data for all of Encana’s activity in the play. As with all unconventional plays, there is learning from every well drilled with valuable data for future efficient cost effective drilling and completion designs to maximise oil recoveries. The most recent wells drilled by Encana in 2014 adopted design optimisations that proved the ability to drill and complete such wells at consistently lower costs. Production Units Approximately 22,000 net acres are within existing units where production meets lease obligations and as such is designated as HBP status. Due to the size of the production units in Mississippi (1,920 acres per unit) and Louisiana (960 acres) the future HBP capex requirements (i.e. one well per unit to meet the HBP obligations of all leases within the formed drilling unit) are modest compared to other shale plays in the US. Australis’ existing land position has been the subject of a lease maintenance program aimed at extending leasehold expiry terms and negotiating royalty rates. As at end of January 2017, 50% of our existing acreage has primary lease expiry terms that are past 1 January 2020. As operator Australis plans an additional lease maintenance program for the non HBP acreage within the Permitted Drilling Units acquired from Encana, with the aim of extending the majority of lease expiry terms to past 2020. This will reduce the time pressure for HBP and development drilling activity. The existing distressed market conditions mean it’s a good time to build our acreage portfolio with assets that contain valuable oil in the ground. Conclusion We believe the consideration for this acquisition represents excellent value, with the current oil price a factor in the valuation. We also have a highly skilled and experienced management team in place with key personnel based in the US to develop these assets further.

12-Feb-2017	Is there a risk you are placing ‘all your eggs in one basket?’
	We have always said that we want to secure oil-weighted, unconventional assets through acquisition, at low cost entry point, and which have significant upside potential. The board believes this is a compelling opportunity that will significantly increase our holding in an area that we believe to be highly productive, and one that is undeveloped, which is increasingly rare. *[Read more]* We have consistently stated that asset quality over asset size is important. This acquisition is a quality asset with significant upside potential. The Australis board and management team founded and successfully developed Aurora Oil & Gas, which owned oil assets in the Eagle Ford Shale was also a single focus asset company. In addition, it gives us control as operator of already producing assets, providing us cash flow too and discretion as to when to commence an HBP and development drilling program.

10-Feb-2017	What are the next steps for the transaction?
	Australis and Encana have executed a Purchase and Sales Agreement (PSA) which contemplates a due diligence period at the end of which both parties need to satisfy or waive several conditions precedent prior to the closing of the acquisition. Due Diligence which will include undertaking items that could not be performed prior to announcement of the transaction. These include environmental reviews, certain title confirmation as and interactions with field staff. In addition, Australis requires approval of its shareholders in general meeting for the issue of shares to the subscribers who have committed to subscribe for A$100 million of new shares at A$0.23 per share. This meeting will convened by a notice of meeting and is expected to be held in mid April 2017. Directors and management who control 28.8% of the existing share capital have irrevocably consented to support the approval for the share placement. Closing of the share issue and the acquisition is expected to be completed shortly after the Shareholder meeting.