Aurora Oil & Gas Corp (AOG)

Little company with some risks. It doesn't belong in accounts that can't afford an occasional flyer. If oil and gas remain high or go higher your upside is really nice. This stock could double in the next year or so. I would put a stop in at 2.15 or so as it also has risk on the downside.

Based in Traverse City, Michigan, Aurora Oil & Gas is engaged in the exploration, acquisition, development, production and sale of natural gas and crude oil in North America. The company primarily operates the ‘Antrim Shale’ in Michigan Basin and ‘The New Albany Shale’ in the Illinois Basin.

The fortunes of the company rely on the fluctuations in natural gas and oil prices, which have been quite volatile at the moment. Albeit, the prices are expected to stabilize in 2007 as per Energy Information Administration (EIA), crude oil prices are currently heading northwards due to fall in the US inventories and weather related supply disruptions in Gulf region. Also, EIA forecasts increase in residential and industrial consumption of natural gas in U.S, which could propel demand and push natural gas prices further.

Aurora Oil & Gas has been an active player in its business, by participating in drilling 209 wells in 2006 that has met with a 94% success rate. Extensions of proved areas and discoveries have doubled their natural gas reserves and company plans to invest further that could enhance their reserves by 100 billion cubic feet in 2007. Management plans to drill more wells in their Antrim Shale project, which now accounts for 89% of the entire production.

One of the concerns for the company was the shutdown of Warner plant that curtailed the production in the fourth quarter of 2006. However, the new Great lakes pipeline, which became operational from February’ 07 could ease off the dependence on the Warner plant, thus offsetting the loss. Also, the cost benefits that the company received from horizontal drilling by partnering with EI Paso could continue as the latter has solved the capital issues and restarted the drilling activites. Hence, it is anticipated that the company would enter a bullish phase in the near future.