Aurex Energy CEO Gary Billingsley talks about the company’s recent acquisition of an LNG asset in the Barnett Shale, Texas.
Aurex Energy is a resourceexploration company developing a diverse portfolio of energy-related metals including cobalt,copper,zinc, nickel and platinum-group elements (PGEs). The company also owns projects in the natural gas and gold sectors, including natural gas reservesowned through a privately held subsidiary in Barnett Shale, Texas. According to Billingsley, the pipeline network that remains on the property in Barnett Shale could give the company a head start as it works to bring the property back online. Based on a recent engineering report conducted by Aurex, Billingsley believes that “when all 10 wells are on stream, [they] could be generating about US$10 million in operating cash flow.”
Aurex Energy’s “legacy project,” located in Northern Saskatchewan, is the largest mafic complex in North America, comprising six mineral dispositions across 26,400 hectares. According to Billingsley, the company expects to drill at the Peter Lake project in the coming year once winter has thawed. Aurex Energy also owns the Cook gold-copper project located in Northern Nevada, which is within 50 kilometers of the Sleeper mine formerly operated by Amax Gold between 1986 and 1996. Nevada is recognized as North America’sforemost gold-mining jurisdiction, one of the many reasons the company felt drawn to the Cook gold project in Humboldt County.
Below is a transcript of our interview with Aurex Energy President, CEO and Director Gary Billingsley. It has been edited for clarity and brevity.
Investing News Network:Joining me now is Gary Billingsley of Aurex Energy. Welcome. Before we get started, what’s your symbol? What exchange are you on?
Aurex Energy CEO Gary Billingsley: The symbol is AURX and we’re on the TSX Venture Exchange.
INN:You’re an interesting exploration company in the sense that you’re in the process right now of acquiring and operating an LNG asset in Texas of all places. First of all, tell us what that project is, and why that’s your strategy.
GB: Well, first of all, we are a mining company, even though we do have some oil and gas experience in our backgrounds. As you know, the equity markets have been pretty tough over the last bunch of years for the miners.
GB: We were in the process of raising money last summer here in Toronto when somebody approached us and said, “would you guys like to acquire some near-term cash flow?” The ears perked up and we said, “sure, tell us more about it.” It turned out that it was a private natural gas company in Texas that had acquired a number of gas wells from the downturn in Texas around 2008 when the prices fell and the bigger guys sort of left the state. The opportunity was there to basically turn these wells back on, rework them and generate cash flow that we could then use to help support our mineral exploration sites. So we like the idea. In my background, I’ve done it before and it worked well, so we went ahead to do it and we just completed the acquisition.
INN: You’ve just completed that deal? Well, congratulations on that.
GB: Thank you.
INN:So what does it mean in the near future for you and your ability to start to seek out some of those other opportunities that you’re hoping to identify and develop?
GB: Yeah, we still have to raise cash and we should be concluding that fairly shortly here to kickstart the reworking program down in Texas. The idea there is that these wells are all tied into pipelines.
INN: They’re already connected?
GB: They’re already connected and the owner of the pipeline is anxious to get gas. A lot of that has to do with new LNG plants they’re building in Houston. The Mexicans apparently are buying a lot more gas than they used too, so there’s a good market for it. They’re anxious for us to get these wells going. Several of them still have gauges that we can read on the wellboard, so they’ve pressured up and they can be run conventionally for awhile when we turn them back on.
INN: So that’s a way of saying there’s very little remedial work that you have to do.
GB: Yep. The way we look at it as mining guys is that the capital required to turn these wells back on is probably less than the cost of a good drill hole.
When you look at it that way, there’s no exploration risk. There is mechanical risk involved in turning them on conventionally, but we will probably refurbish what’s on the surface there for around $200,000 to refracture some of the wells, which is really what we’re looking to do.
The Barnett Shale is one of the most prolific units in the United States, producing over 3 billion cubic feet of natural gas a day. There’s been 20,000 to 30,000 wells drilled into it over the years. Most of that when gas was US$8.
Because of the pace of that activity, not all the wells were drilled properly or completed properly or refractured properly. When you think about a 3,000- to 5,000-foot horizontal length and you can see they’ve only refractured a small part of that, there’s opportunity to go back, refracture and increase production. So all of that can be done in the $600,000 to $700,000 range to re-complete each one of these things.
INN: That’s it?
GB: That’s it. To us, the risk-reward is well worth it. Recently we had our engineering report made that shows that, when all 10 wells are on stream, we could be generating about US$10 million in operating cash flow. That’s after all operating expenses, taxes and everything.
INN: Right, and as you say there are new LNG facilities that are under construction right now in Texas and they need to satisfy that market, which goes beyond North America. As they start to firm up their contracts, they’re going to need supply.
GB: That’s right, and the other part of it is the gas prices down in Texas right now. The Henry Hub price is sitting at around US$3. We get a premium on the Henry Hub because it’s sweet gas. So we’re probably looking at more than C$4 in MCF compared to C$2 or less in Alberta. So there’s quite a difference in developing natural gas down there.
INN:What’s the timeline between now and when you’ll be operational and can start to see that cash flow?
GB: We’re targeting less than two months before we start. We will probably start turning on some of the first wells on a conventional basis just to create cash flow. Even when we’re into the rework stage, that probably takes less than two months to bring those things on stream. So it’s very quick.
INN:So over the next four to six months you should be experiencing some positive cash flow. That takes us back to the fact that you are an exploration company in energy-related metals, copper, zinc and so on. What do you have under wraps that you’re looking into?
GB: The overlying theme in all of this is that we’re looking at energy-related resources, so it was no stretch for us to look at natural gas. When you’re looking at the trend away from fossil fuels, natural gas is a transition in that whole process.
INN:Of course, LNG is used in co-gen power, power generation, gas and steam. There is a tremendous demand for that, particularly in China.
GB: Yep. European markets, Chinese markets. That’s the target we’re looking at. My background for the last 15 years or more has been strategic metals and some of those were battery-related metals. My view is that the number one electric metal is copper, so most of our projects actually have copper associated with them, as well as zinc. Then there is cobalt there, which is a hot battery metal.
INN:Yeah, vital in the green technology space around lithium batteries. You can’t do it without cobalt if you want to have a stable battery.
GB: Gold is with most of these things as well. We think it’s a good time to start developing gold projects, because we’re pretty bullish on the future of gold here. So the overlying theme with the energy-related metals is that we’re looking at base metal products, something to have cobalt or silver as a by-product.
INN:Do you have any projects currently underway in those energy-related metals?
GB: Aurex was originally a company called Canadian Platinum, headquartered out of Calgary. The group that was running it asked me to take it over. One of the legacy projects they had been working on is in Saskatchewan, and it’s the second-largest ultramafic in North America with PGEs. They were focused on platinum. It’s a nickel-copper project really that has PGEs with it. So that project is at the stage where it will require a significant amount of drilling to get the resource up to where it needs to be. So we’re looking for a partner on that one. I call that one our legacy project. We’ve got another project we call Craig Lake that’s situated on the Flin Flon Manitoba-Saskatchewan border.
INN:So before you go on to the next one, where are you at on that project?
GB: We are heading for the next stage. So once we get the natural gas thing kicked off, we actually have drill targets now on that Cook project, so it’s ready for drilling.
INN:Do you have a timeline on that?
GB: Yep, this year. We’re going to start that likely this summer. Unfortunately, it snows there.
INN:Yes. So you got to get in there before the weather does?
GB: We will wait until I think May, June probably.
INN:For spring break?
GB: Yeah, that’s right. So that’s where that one is. There are four major structures on that project, and something like 32 old workings that they found and mapped on there. The historic surface sampling there had produced some pretty high-grade results. We duplicated that. Almost 20 percent of our assays were over an ounce per tonne when we sampled on surface and up to 15 percent copper, especially in one structure. The hyperspectral that we did over the property looking for alteration was consistent with epithermal deposits. It showed that there is a system mineralizing epithermal-type deposits. There’s a porphyry signature there too. To the north of us, there are guys working on porphyry copper, so that one is going to be pretty good moving forward.
INN:Yeah. And then you have another one in Nevada as well?
GB: We have another one in Mineral County. It’s just south of Hawthorn, about a two-and-a-half hour drive south of Reno. It is a former producer back in the early 70s, it had some underground workings on it. It’s a skarn-type deposit. So there’s actually multiple types of mineralization on it. We’ve got the assays back from underground sampling we did there to confirm that historical underground work that they did, and we’ll be announcing that shortly. That project is also part of the option agreement. We’re earning into that one. There’s a mill about 50 kilometers away that could be useful down the road.
INN:Would you say your expertise is being able to identify opportunities or see potential that others may have overlooked? Is that really the core of what the brain trust at Aurex is all about?
GB: We seem to be good at it. I always tell people I don’t know how much of it is being smart, or how much of it is being lucky and in the right place at the right time. But being able to identify things like that, yeah, I think that we have a knack for it. The people that I work with, they’re pretty good at picking out deposits that can go all the way.
INN:So tell me a little bit about your team. It’s clear to anybody who’s watching that you’ve got a tremendous depth of experience and knowledge about each one of these projects. You’ve done this kind of work before taking the strategy forward. Who else is on your team?
GB: We’re keeping it lean right now.
INN: Good idea.
GB: In the past when we’ve done some of these companies and we’ve staffed up, it’s been a lot of pressure. As soon as you mention the word “human resources” that’s a hint that you’ve gotten too big.
INN: It means you’re spending money on staff sitting in an office rather than on the project itself.
GB: The advisors that we have are geologists my age that I’ve worked with over 30 years. So they’re kind of overseeing what we’re doing. There’s also a local consulting group in Saskatoon called Axiom that has a number of very smart young kids. I call them young but they’re probably between 35 and 40 now. They’re the ones doing all our exploration work on the ground. They’ve got all the technology down; they’re using drones. They’re a one-stop shop. They’ve got geophysicists, they’ve got geologists, they’ve got connections to metallurgists, so that’s really what our team consists of.
INN:Well you look like you’re in a unique and interesting position right now, especially with the acquisition of the wells down in Texas giving you that cash flow to move forward.
GB: Well that’s the other part of it. The subsidiary company is still intact in Dallas and the fellas down there that are seasoned oil and gas explorers. They’re hands-on guys. They’re still operating wells as consultants for other groups down there. So that’s a big part of the team going forward.
INN:Well you’re at a really interesting point, and I hope you’ll come back and give us an update next year, because it sounds like you’ve got a lot ongoing and it will be quite interesting to hear how you’ve moved each of these projects along. I’m sure there might be other ones on the horizon at that point too.
GB: Well there’s a lot that we’re thinking about, and I’d love to come back. It always goes slower than you think it should. One step at a time and we’ll get there.
INN:Yeah. Thank you very much.
This interview is sponsored by Aurex Energy (TSXV:AURX). This interview provides information which was sourced by the Investing News Network (INN) and approved by Aurex Energy in order to help investors learn more about the company. Aurex Energyis a client of INN. The company’s campaign fees pay for INN to create and update this interview.
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