Business Study Report: ABILENE OIL AND GAS LIMITED, ASX Listed Company

This business study report provides a comprehensive analysis of ABILENE OIL AND GAS LIMITED, an ASX-listed oil and gas exploration and production company. The report begins with an introduction to the company's business, its location, and its corporate strategy, followed by a comparison with key competitors such as EOG Resources Inc. and Occidental Petroleum Corp. It examines the ownership structure, corporate governance practices, and financial performance, highlighting the company's restructuring initiatives. The report then delves into the production costs, including fixed and variable expenses, and details the company's plans for large-scale operations. A significant portion of the report focuses on the macro business environment, including political stability in the USA, economic indicators such as inflation, unemployment, and interest rates. The report concludes with a discussion on sustainability aspects, including carbon emissions and health and safety measures, providing a holistic view of ABILENE OIL AND GAS LIMITED's operations and its position within the industry.

ABILENE OIL AND GAS LIMITED
Business Study Report

Table of Contents
Introduction:...............................................................................................................................3
1.Introduction of the Business, General Business environment:...............................................3
2.Production costs and scale:.....................................................................................................5
3. Macro business environment..................................................................................................6
Political stability.....................................................................................................................7
Economic environment..........................................................................................................8
Inflation trend.....................................................................................................................8
Unemployment trend..........................................................................................................9
Interest rate.......................................................................................................................10
GDP growth trend............................................................................................................11
Consumer sentiment.........................................................................................................12
Currency rate....................................................................................................................13
Key factor of production......................................................................................................14
3. Sustainability........................................................................................................................17
Carbon emission...............................................................................................................17
Bio diversity.....................................................................................................................18
Health and safety..............................................................................................................18
Govt move........................................................................................................................18
Conclusion:..............................................................................................................................18
Reference..................................................................................................................................20

Introduction:
In this assignment we are developing a business study report to understand and analyse the
various aspects of the business. First of all a discussion has been held regarding the location
and nature of business of the chosen company (That is listed in ASX) and the relevant
corporate strategy that is to be followed by the company to run their day to day business
operations .Then analysis has been done regarding the financial performance of the company
with respect to the rivals of the industry (Shah, 2012). The ownership structure and the
corporate governance strategies of the business have also been studied to understand the
overall environment of the chosen company. Besides discussion has also been made
regarding the scale of operation and the type of costs that are mainly present in the business
and how they are affecting the activities of the company. A study of the macro business
factors has been done to analyze the impact of the external factors over the operations of the
company.
1.Introduction of the Business, General Business environment:
Name of the business: ABILENE OIL AND GAS LIMITED
Location Of the business: The Company is an Australia based company that is mainly
engaged in resource exploration with a focus on Oil & GAS sector in Australia and several
Overseas country. The Company has a large business operation in West USA and the assets
of their company are in KANSAS USA.
Type of business: ABILENE OIL AND GAS LIMITED is a oil production development and
exploration company. The company mainly operates in the oil& Gas exploration sector in
USA and holds a special interest in the Klick east oil fields (in.reuters.com, 2017).
The corporate strategy of the company is to handle high return projects along with
innovative funding while maintaining low overhead and low corporate cost.
The main buyers of the exported oil and gas of the company are the Refineries, National
Oil Companies, Oil & Gas distribution companies, Traders of Oil & Gas products of the
nation in which they are operating and also the International Oil and Gas companies. Most
obf these buyers of the company are either located in USA or Australia.

Business Competitors:
Some of the major competitors of the business are as follows:
EOG Resources Inc (USD): This Company is one of the largest independent crude oil and
natural gas exploration company of USA with a market capitalization value of $ 52605
million. The main objective of the company is to maximize the exploration of oil and natural
gas in the country by offering best rates and returns through the control of capital and
operational costs.
Occidental Petroleum Corp :
The oil and gas production and exploration activities of the company are present in the
geographical locations of United States, Middle East & Latin America and the current market
capitalization value of the company is around $47059 million(Abilene.com.au, 2015).
Canadian Natural Resources Ltd: This Company is another strong competitor that operates
mainly i the field of oil exploration and their operations are mainly present in the oil fields of
Canada & USA and the current market capitalization value of the company is around $ 40142
million (Financials.morningstar.com, 2017).
The market capitalization value of Abilene Oil And Gas Limited is only around AUD $ 3
million as per the reports of the “investing .com”. The other local competitors of the company
are Beach Energy (BPT, Australia, market capitalization value: AUD$ 1312 million), Oil
Search (OSH, market capitalization value: AUD$ 10345 million), Santos (STO, market
capitalization value: AUD$ 80165 million), Woodside Petroleum (WPL, market
capitalization value: AUD$ 24094 million).Thus it can be seen that in terms of the market
capitalization the chosen company is much behind of their competitors (investsmart.com.au,
2017).
The ownership structure of the company includes the institutional ownership, Insider
ownership, General public ownership and the Private Company Ownership. The institutional
ownership accounts for 15.92% of the total ownership structure of the company. Insider
ownership, General public ownership and the Private Company Ownership accounts for
57.89%,9.37% and 16.82% respectively out of the total ownership or share holders of the
company. Thus it can be seen the major category of the share holders of the company are in
the category of Insider ownership. The insider ownership is mainly focused towards how the

company will be managed and is less focused towards the impact of trading on the
outstanding shares of the company. As the major owners of the company are the Individual
insiders, this indicates that these individual insiders are badly affecting the stock performance
of the company. The company is continuously running with low or underperforming P/E
ratio(Carr and Carr, 2017).
The corporate governance practice of the company ensures that the board of directors of
the company will ensure the highest standard of ethical behaviour and accountability with
respect to every other incidence that are taking place in the company. In order to develop and
maintain a good corporate culture the company often adopt the Corporate Governance
principles and recommendations of the ASX Corporate Governance Council
(Kulander,2012).
Due to continuous week financial performance up to 2012-2013 the company has taken rapid
restructuring initiatives in 2014. The restructuring initiative proposes that the company will
be renamed as “Abilene Oil & GAS” and will be listed in ASX with the new ticker of
“ABL”and mainly focus on exploration of high risk –high return crude oil projects that can
add value to their reserves.
2.Production costs and scale:
The fixed cost of production that ABILENE OIL AND GAS LIMITED has to bear as a
drilling company of natural gas and oil are as follows:
 The cost of finding and oil well
 The cost of oil drilling
 The cost of generating the initial outputs
 The cost of maintaining or renting the drilling equipments
 The cost of regulatory compliance
 Long term workers contract
The decision of incurring the fixed cost is taken by the company once the decision for drilling
and exploration has been taken by the company with respect to a particular oil well. Thus
these are the costs that do not vary with the units of production as the business has to incur
theses expenses at the initial level of production. The expected fixed cost of the company is
around US$480K per annum

The variable cost of production of the company is as follows:
 The cost of maintaining the well
 Short term equipment contracts (Tsui, 2011)
These are the basic & major variable costs that the business has to incur while running the
drilling operations. These costs directly vary with the units of production. In other words if
the business is looking for more production or say drilling of oil then it will extend the cost
contact for maintaining the well and the contract of hiring the equipments(Preserve the
Beartooth Front, 2015).
So far as scale of operation is concerned the business is trying to initiate a large scale
operation as described by the following fact and figures:
 The company is all set to adopt a gross production base of 250-1000 BOPD
 The adoption of this production base is expected to fetch cash revenue of US$ 155000
per month
 The cost of this production rate is expected to be around US$ 738000 per month
 Thus there will be enough residual cash flow to fund the operat6ional actitivies of the
company (Tu and Sui, 2011)
 The production operation of the company is expected to be financed from the cash
flow of the company
 Capturing the large acreage position
 The Company is engaged in the projects of Lodestone [15630 acres] & Welch
Bornholdt[13000 acres] with shares of 49% and 50% respectively. All, these projects
are ready to drill projects
 As more funding will be available the company will look more acquisition of risky
drilling sites with larger acreage (Clark and Veil,2009)
 The company is expected to drill around 15-17 wells in 2015.Out of these wells 10
wells are expected to be under the Lodestone project and 4-6 wells are expected to be
under the Welch Bornholdt project(asx.com.au, 2014)
All the above findings describe that the company is planning a large scale operation in near
future.

3. Macro business environment
Abilene Oil and Gas Limited is an ASX listed company which is focused in its business in
the USA’s mid west part. The organisation is engaged in the exploration activity,
development activity and production activity in the oil and gas sector. Most of the assets
company are in the state of Kansas. The organisation wants to increase the number of drilling
locations in its operation with increasing the asset for the production and exploration purpose.
The goals and objective of the company would have an influence from the macro
environmental factors. The macro environmental is analysed through following factor.
Political stability
USA is one of the oldest democracies in the modern time. The country is politically stable.
The figure below shows the political stability value of the country. The index below ranges
from -2.5 to +2.5 and that is the week and strong value respectively. Around this 20 year
period the country scored on average 0.47. Out of 194 countries USA stands at 56 places in
the global ranking in 2015 (TheGlobalEconomy, 2017). But the recent presidential election of
2016 must have changed the situation. The general population as well as the political parties
of the country are worried about the future political situation and the general future of the
country (USA Today, 2017).
[Source: TheGlobalEconomy, 2017]

The main threatening factors for the oil and gas industry are the political stability and the
conflict of geo-political nature. In the world around 90% of the oil and gas reserved are
owned by the national company and their share in the production is 75%n (Pitatzis, 2016).
The political instability is a common factor among the energy rich countries. But the stable
political scenario of USA does not provide such threats for the company. On the contrary the
policies of the Trump administration regarding the oil and gas sector are favourable. As soon
as they came to power the administration declared their pro energy policy for this industry
(Sharma, 2017). This is big confidence boost for the industry which was facing problems for
the low oil price for past few years.
[Source: Pitatzis, 2016]
Economic environment
Inflation trend
The economic scenario of the USA is also important for the industry. The good economic
scenario and positive consumer spending scenario would impact the sector. The rate of
inflation of the USA economy for the last 12 month is 1.7% (US Inflation Calculator, 2017).
The inflationary trend is higher compare to the previous year’s position but it is expected to
stay below the figure of 2011.

[Source: US Inflation Calculator, 2017]
Unemployment trend
The unemployment trend in the USA picked in the year 2009-10. Since then the situation
improved significantly. In the current years the unemployment rate which stands at 4.4% is
the lowest in last 16 years (data.bls.gov, 2017). The detailed report of the unemployment is
week regardless of the downward trend of the rate. The increase in the wage figure is also
important here. Year on year bases the average increase in wages is 2.5% (Mutikani, 2017).
This low rate of unemployment and inflation is making a case for the interest increase by the
Federal Reserve.

[Source: data.bls.gov, 2017]
[Source: data.bls.gov, 2017]
Interest rate
The interest rate of the economy is very important as this would impact the business
operation running cost. Oil and gas is capital intensive industry which depends largely on the
debt finance. Considering this the rate of interest in the economy becomes significant
macroeconomic factor for the industry. Currently the rate of interest is 1.25%. In historical
terms the highest rate of interest was in 1980 at 20% and the lowest level touched in 2008 at
0.25% (Tradingeconomics, 2017). From the year 1971 to till date the average rate of interest
is 5.77%. So the historical level and the other economic indicator are showing that the rate is
only going to increase in the future.

[Source: Tradingeconomics, 2017]
GDP growth trend
The DGP growth rate stands at 3% as per the estimates of 2017’s 2nd quarter. The current
trend shows that after 1st quarter of 2015 this is the strong upward movement. The
contribution of the ‘personal consumption expenditure’ is 2.28%. The rate of spending in the
durable goods section is 8.9% and in the section of nondurable is 4.3%, whereas in the
service sector the rate is 2.1% (Tradingeconomics, 2017). The contribution of investment in
the growth process is 0.58% where it grown by 3.6%. Considering all of this the economic
scenario is looking positive.

[Source: Tradingeconomics, 2017]
Consumer sentiment
The consumer sentiment index is also important. The chart below shows the consumer
sentiment values of the US population for last 5 years. From the year 2012 the trend is
showing a rising approach. Compare to the previous years the current year is on the higher
level. The consumers are expecting a better financial situation as the rate of inflation,
unemployment are low (Tradingeconomics, 2017). The interest rate is also stable and the
rising trend in the stock and homes are also giving positive motivation to the consumers.

[Source: Tradingeconomics, 2017]
Currency rate
The USD value some time gets appreciated against the other currencies in the world. In that
situation the price of the commodity around the world see a downward trend. The expected
rate hike by the USA Federal Research would reduce the dollar value and that may negatively
impact the crude oil prices (Marketrealist, 2016).
[Source: Pitatzis, 2016]
But in recent time the increment in the interest rate lowered the value of dollar. The current
chart of dollar index is sowing downward trend despite the expectation of rate hike.
Considering this the final conclusion is that the price of crude is expected to increase.

[Source: Bloomberg, 2017]
Key factor of production
One of the key factors of product in this high capital intensive industry is the use of
technology. The cost of production of oil and gas in USA is on the higher side. Considering
this the investment in the innovation and technology is critical for lowering the cost of
production (Kong and Ohadi, 2010). The major obstacle of this investment is the uncertainty
in return. Current trend in this sector is the process of automation.

[Source: Marketrealist, 2016]

[Source: Pitatzis, 2016]

[Source: Pitatzis, 2016]
Overall macro business environment is positive, especially the macro economic indicator.
The demand in the market will going to be high but the challenge is the efficiency of
production as the current price of oil and gas is low (Kong and Ohadi, 2010). Increasing
investment in the innovation and newer technology is the key to increase profitability.
3. Sustainability
There is long and short term environmental impact of the oil and gas industry. In the Kansas
area 63% of gas and 93% of oil are produced by small and independent producer (Kioga,
2017). Considering the market capitalisation of ABILENE, it is under small scale producer.
Small size gives lower capacity to the company to spend for the sustainability purposes. The
sustainability issues are as follows.
Carbon emission
This green house gas emitted by the sector is one of the largest among all other sectors. One
of the reasons is the, flaring, venting and methane release in accidental manner through its
production process. This release of methane gas is 25 times more harmful in term of global
worming than the carbon di oxide (Anis and Siddiqui, 2015). The drilling process also
consumes lot of energies in the process which also contributing in the green house gas
production.

Bio diversity
The drilling and production of oil and gas create disturbance in the biodiversity and in the use
of land (Dong and Burritt, 2010). The situation of oil spill along with some recent risky
exploration patter is impacting the surrounding ecology.
Health and safety
There is always a chance of catastrophe in this industry which could put the health and safety
aspect in great danger (Anis and Siddiqui, 2015). The organisation needs to remain constant
vigilant to keep the operation safe.
Govt move
Previous govt in USA restricted the methane emission through the standard developed by the
‘Environmental protection agencies’ or EPA. This was the strong move taken by the Obama
administration. But in recent time the country under Trump presidency came out of the
agreement of global climate change. Few months ago the EPA put the standard which is
called ‘New Source Performance Standards’ on hold for ninety days (Reuters, 2017). The
standard earlier asks the companies in this sector to arrest the fugitive emission and then take
a certificate from the engineer. The standard also asks for the installation of the leak detection
of the methane gas. But ABILENE needs to take a long term position in the business. This
halted decision may be short term as the pressure from the different groups or change in
political scenario, may change the current decision (Dong and Burritt, 2010). Considering
that the organisation needs to prepare for the longer time.
Conclusion:
The above discussion reveals that the chosen company ABILENE OIL AND GAS LIMITED
is trying to hold a strong foot in the oil & GAS exploration industry of Australia and USA.
The current operations of the company are mainly focused towards the WEST USA oil field.
The company is lagging much behind with respect to the market capitalization value in
comparison to the local and offshore competitors (Martin et al.,2011). The macro
environmental factors such as rate of unemployment, market interest rate, inflation, consumer
sentiments of the US economy are expected to affect the company in a positive way. The
company incurs both fixed and variable cost for running their business operations. The fixed
cost of the company includes the cost of primary material, cost of regulatory compliance the
cost of drilling all that does not vary with the units of oil exploration of the company.

However the variable costs like the short term equipment hiring cost or well maintaining cost
vary with the units of production. In near future the company is all set to run their operations
at a large scale.

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