Thursday, December 13, 2012

Is Lynden a "No Brainer"?

Yesterday’s announcement by Lynden Energy Corp. of a sale of certain assets to BreitBurn Energy Partners provides a basis for valuation of Lynden‘s remaining lands. (LINK TO PRESS RELEASE)
We believe the sale was likely located within the West Martin project area.  The $25 million sale price for 630 net acres equates to a land valuation in West Martin at $40k/acre.  Using this transaction as a benchmark, it is possible to project values for Lynden’s remaining lands, and in turn, a reasonable market cap/fully diluted share price for LVL.

First, our assessment is that Lynden’s Wind Farms project is every bit as valuable (if not more) as the land included in yesterday’s announcement.  The BreitBurn sale thus provides a justifiable comparable for the Wind Farms land at $40k/acre.
Lynden’s Tubb project is located in an area that in general is not as developed/proven as the West Martin and Wind Farms.  That said, the Tubb project area is in the heart of the developing Fusselman play.  The Fusselman Shale is located below the Mississippian Shale and is being explored by Cobra, Target, Trilogy and others.  Cobra’s Fusselman well is located adjacent to Lynden’s Tubb project and is rumored to be very successful.  Apache is developing the Fusselman and the Cline just south of Tubb and immediately east of Wind Farms.  We believe that a reasonable valuation for Lynden’s Tubb land is $20k/acre based on its Wolfberry exposure. Further, the value of these lands could increase to as much as $40k/acre with successful Fusselman and Cline drilling by other companies.

The drilling by Devon adjacent to the northern border of Mitchell Ranch and the Firewheel well (rumored to be of substantial size) to the south leads one to believe that a valuation of Lynden’s Mitchell Ranch lands at $2k/acre is very low.  A valuation of $7.5k to $10/acre is entirely reasonable, given the current desirability of Cline Shale land.
From an operational viewpoint, the BreitBurn deal provides Lynden with plenty of working capital in exchange for a relatively small portion of its total assets (less than ten percent of its Wolfberry land). The $25 million proceeds (net to Lynden) provide a solid cash cushion for the Company, greatly minimizing any worries about future financings or Lynden’s ability to continue as a viable company for the foreseeable future.

What does this mean?  Lynden’s remaining Wolfberry acreage in aggregate can be valued at $200 to $250 million: this asset alone would equate to twice the Company’s current market cap.  Adding in the potential of Mitchell Ranch, the sum of Lynden’s assets could easily reach $500 to $600 million, translating to a fully-diluted price of up to $4/share. 
Is this possible?  With the frenzy to acquire land in the Wolfberry and Cline and the validation of present Lynden holdings based on the BreitBurn sale, we believe so.  In January 2011, The Oil and Gas Investments Bulletin called Lynden Energy a “No Brainer.”  That comment now looks accurate and we believe that Lynden Energy Corp. is indeed a “No Brainer.”

Two more articles about the Cline Shale and oil boom in the Permian Basin

Here are two links to articles about the Cline Shale:

From, Spotlight intensifies on emerging Cline Shale.  This article states "the Cline could be the larest oil play in the nation's history," and that Devon is ramping up drilling activity in the Cline.

From CBS7, Shale Oil Formations Bringing More Companies to West Texas.  When will the oil boom end?  This article talks about "a second oil boom coming to the Permian Basin," and says the "Cline Shale Play is one of the most promising."
It seems that every day, more and more attention is being paid to the Cline Shale.

Tuesday, December 11, 2012

Wow! Lynden Energy signs agreement to sell 630 net acres for $25 milllion

Lynden Energy Corp. entered into an agreement to sell 630 net acres for $25 million to BreitBurn Energy Partners today.  This equates to $40,000/acre!!!  Given that 630 net acres is less than 10% of Lynden's Wolfberry project holdings, this is a tremendous deal for Lynden and validates the acreage valuations that have been used in previous posts.  More to come later.

Lynden Energy/Mitchell Ranch are in the heart of the Cline Shale!

The Cline Shale has been called "one of the most under-appreciated plays in the U.S." and possibly "one of the largest oil plays in American history."  If this turns out to be true, Lynden Energy Corp. could be sitting on one extremely valuable piece of property.  Devon and Firewheel are drilling wells all around Lynden's Mitchell Ranch. 

Back in April, we wrote about "How to Play the Cline."  Given Lynden's holdings in the core Wolfberry and the activity by Cobra, Trilogy, Target, Apache, etc. in the vicinity, we believe that their Mitchell Ranch project value is not reflected in their stock price.  With the latest excitement about the Cline Shale, Lynden's Mitchell Ranch could possibly be valued significantly higher than $5k/acre in the future.  Could that value be $10k, $15k, $20k/acre or higher?  Only time will tell.

Lynden's holdings include 6,730 net acres in the Wolfberry project and 34,150 net acres at Mitchell Ranch.  This appears to be a classic case where the sum of the parts is greater than the whole.  Both Mitchell Ranch and their Wolfberry projects separately could be valued higher than the current market cap.  Just as the Cline Shale is one of the most under-appreciated plays, Lynden is one of the most under-appreciated stocks should they ever be able to monetize their assets.

Thursday, December 6, 2012

Devon permits three wells on the northern border of Mitchell Ranch

The Oil and Gas Investments Bulletin stated that "Devon Energy is now licensing a well very near the northern border of Mitchell Ranch."  They have in fact permitted THREE wells about one mile north of Lynden Energy's portion of Mitchell Ranch and two more in close proximity.  We have shown the five Devon wells and two Firewheel wells on a map in relation to Mitchell Ranch.

Does Devon have the Mitchell Ranch in their sights or is it a mere coincidence that the wells are that close?  Either way, the wells are a good sign and the results will go a long way toward showing the producte capability of the area without further expenditures by Lynden.

Mitchell Ranch is indeed in the hotbed of permitting activity in the newly discovered Cline Shale!  Very exciting for Lynden!!! 

Wednesday, December 5, 2012

Oil and Gas Investments Bulletin update on Lynden

Keith Schaefer from the Oil and Gas Investments Bulletin posted an update on Lynden Energy today.  He states that Lynden is open to both a corporate deal and selling off assets.  We believe that monetizing the Wolfberry assets would be worth potentially $200 million (LVL's current market is cap is about $100 million) and Schaefer states that that would be a realistic transaction price.

Schaefer also states that a private company has hit a 1,000+ bopd well just a few miles south of Mitchell Ranch.  We believe that he is referring to one of the Firewheel/Oxy wells, either the Horwood #2151H or the H&H Ranch #41 well.  There is a lot of permitting activity surrounding the Mitchell Ranch area due to the abundant interest in the Cline Shale.  We believe that Schaefer's estimate of value for Lynden's Mitchell Ranch of $2,000 to $3,000/acre is low.  A valuation of $7,500 to $10,000/acre is entirely possible in the near future which could add $250 to $350 million of value.  We believe that exciting times are ahead for Lynden!

Friday, November 30, 2012

JVL Advisors purchases another 1,044,000 shares

JVL Advisors purchased another 1,044,000 shares on 11/26 and 11/27.  This brings their total holdings to 15,051,100 shares!  JVL purchased 7,143,000 shares through a private placement and have now purchased an additional 7,908,100 shares in the market.  The purchases in the market have been above the price of the warrants which is certainly an encouraging sign.

Wednesday, November 28, 2012

More evidence of a Cline Shale boom

Lubbock-Avalanche Journal posted an interesting article on the Cline Shale.  The article states that the Cline Shale "is anticipated to be one of the largest oil plays in American history!"  Here is the link:

Tuesday, November 27, 2012

John Lovoi keeps buying Lynden Energy

John Lovoi continues to purchase shares of Lynden Energy Corp.  He now controls 14,007,100 shares as of 11/26/12.  It appears that another 1 million shares traded today in one transaction and could possibly be another insider purchase.  Given the recent activity around Mitchell Ranch by Firewheel Energy and around the Tubb area by various companies drilling in the Fusselman, Lynden's land is becoming more and more desirable.  Obviously, JVL Advisors is a believer. 

Here is an updated acreage/valuation analysis that shows the huge potential for Lynden!

                             Acreage       Low               Mid              High
West Martin/WF     4,108         $20k/acre       $27.5k/acre  $35k/acre
Tubb                      2,401         $30k/acre       $35k/acre     $40k/acre
Mitchell Ranch       34,150        $5k/acre         $7.5k/acre    $10k/acre

Total                                       $325 M             $453 M         $581 M

John Lovoi has extensive experience in research covering the oil industry as head of Morgan Stanley's Global Oil and Gas investment banking practice.  By these calculations, Lynden is worth several times its current market cap and could be worth $2 to $4/share.  Thhis may be the reason why John Lovoi is buying is such large quantities.

Thursday, September 20, 2012

JVL Advisors acquires common shares of Lynden!

It was announced today that JVL acquired an additional 3,389,100 shares of Lynden Energy from August 28 to September 11.  It is also apparent that JVL must have been involved in the recent financing.  JVL now owns 10,532,100 shares of Lynden!
JVL Advisors is a great team to partner up with.  A company like that would not buy into the private placement and continue to purchase shares in the open market without doing their due diligence and clearly they like what they see.  John Lovoi, the founder of JVL Advisors, previously served as Head of Morgan Stanley’s Global Oil and Gas investment banking practice.  With his experience in research and covering the oil industry, his due diligence must have concluded that Lynden is undervalued and worth backing.  We are extremely excited at the prospects of having JVL Advisors as a large Lynden shareholder. 

Under John Lovoi, Morgan Stanley was a leader in oil and gas investment banking and mergers and acquisitions.  He was “regarded as one of the most influential analysts in this sector and was well known for his stock picking capabilities.” For Lynden to be associated with JVL, this will undoubtedly open up many opportunities. 
We view Lynden’s prospects as extremely bright, especially with all of the interest in Wolfberry and Cline Shale land.  There are now open well permits in the vicinity of Mitchell Ranch and it appears the industry is testing wells in that area.  With support of JVL Advisors, we believe that Lynden can realize its market cap potential and that this stock can return multiples.

Wednesday, August 1, 2012

Couple of comments from Devon conference call

There were two interesting comments made during the Devon conference call today:

David Hager, Executive V.P. of E&P - "While it's in the very early stages of the evaluation of our position, we are very encouraged that the Cline Shale with be a highly economic oil play."

John Richels, CEO - "Current production is less than 500 bod that we'd be conveying."  This is regarding to current production on the JV acreage.

It appears that the lands conveyed to Sumitomo are basically undeveloped and they paid $7,200/acre for undeveloped Cline Shale land.  A portion of Devon's land is adjacent to Lynden Energy Corp.'s Mitchell Ranch and that may help explain today's runup in Lynden's stock price.

Devon Energy/Sumitomo $1.4 Billion JV in Cline Shale and Midland-Wolfcamp Shale

Devon Energy announced a $1.4 billion joint venture with Sumitomo Corporation.  Sumitomo will invest $1.4 billion in exchange for 30 percent of Devon's 650,000 acres in the Cline Shale and Midland-Wolfcamp Shale.  This deal is equivalent to $7,200/acre!

The deal is generating a lot of industry attention.  Wunderlich Securities expects to see more JV's in the Permian Basin as this deal is "the first block buster JV in the Midland Basin and we expect more to come". 

There is a lot of drilling activity in the Permian Basin and Lynden Energy has significant holdings in both the Wolfberry and Cline Shales.  Lynden's West Martin/Wind Farms project and Tubb project include 6,509 net Wolfberry acres and is now producing over 900 boe/d per the company's latest release.  The core area (West Martin/Wind Farms and Tubb) can be valued at $25,000/acre to $30,000/acre given the amount of current development valuing it at $150 million to $200 million.

Lynden's Mitchell Ranch acreage is in the heart of the Cline Shale, in fact Devlon has significant Cline holdings adjacent to it.  Should one value Lynden's 34,150 net Mitchell Ranch acres at $7,200/acre, LVL's market cap would soar! 

With the increased industry attention to the Permian Basin and the Cline Shale, it is likely that larger companies are either looking at Lynden or will be looking at Lynden.  Lynden is a unique company as it's one of the few small companies in the basin that has significant acreage.  Lynden is sitting on a great asset that is in the heart of the Permian activity and is in a great position to take advantage of the recent JV activity. 

Tuesday, July 3, 2012

Breitburn Energy Closes Permian Acquisition

BreitBurn Energy Partners L.P. closed on their Permian Basin Wolfberry acquisition.  The price per acre metric was $47,826/acre.  Of additional interest is that it was disclosed that CrownRock LP was the seller of one of the properties for $70 million.  CrownRock is the working interest partner in all of Lynden Energy's projects.

Friday, May 11, 2012

Lynden Acreage Map

As you can see from the above map (LVL lands shown on map taken from Laredo's recent presentation), Lynden Energy Corp. has acreage located within the heart of the Wolfberry play with all of the large Wolfberry players surrounding them.

Given the two recent Permian Basin acquisition metrics of $38,600/acre and $47,826/acre, it's possible that Lynden could sell portions of their acreage for similar amounts.  Here are valuations of each of Lynden's prospect areas based upon the recent transactions:

West Martin, 2,746 net acres @ $43,000/acre = $118 million
Wind Farms, 1,095 net acres @ $43,000/acre = $47 million
Tubb, 2,469 net acres @ $43,000/acre = $106 milllion

Lynden's Mitchell Ranch prospect area is within Devon Energy's delineation of the Cline Shale.  Valuing that land at $5,000/acre equals $171 million (34,150 net acres).

Recent transactions are continually validating Lynden's land as viable Wolfberry acreage.  With companies scrambling to assemble Wolfberry acreage positions, Lynden has a tremendous opportunity to capitalize! 

Thursday, May 10, 2012

BreitBurn Energy Partners enters Permian Basin, another great Wolfberry comp! $47,826/acre!!!

BreitBurn Energy Partners L.P. signed two agreements to acquire Permian Basin Wolfberry properties.  The combined price is approximately $220 million.  The assets include:

- Net production of 2,100 boe/d (56% oil)
- Estimated proved reserves of approximately 9.5 mmboe
- Net acreage position of 4,600 acres

This is a great comp for Lynden Energy!  The price per acre metric for these transactions is $47,826/acre and $104,762 per flowing boe/d.

Wednesday, May 2, 2012

Comments about Permian values and Cline

The latest issue of A&D Watch Weekly was released today and included some exciting comments.  An article about Permian Basin values stated that there is still great deal price upside in the basin.  The article states further that the Permian has a lot of room to go up due to the potential of several stacked payzones and that development is easier in the Permian than most other basins due to the ease of doing oil development in Texas and the few surface obstacles.

Ward Polzin, head of A&D for Tudor Pickering, Holt & Co. Securities, Inc., was quoted in the article saying that the Cline shale play is the "next new hot thing, no question about it," and that the "Cline is the real thing."

Monday's release regarding the Eagle Energy Trust acquisition and $38,600/acre valuation backs up the comments from the A&D article.

Monday, April 30, 2012

Eagle Energy announces Midland acquisition, $38,600/acre!!!

Eagle Energy Trust announced that they have entered into an agreement to acquire a 92.5% interest in 3,175 gross (2,937 net) acres of land near Midland.  The purchase price is $113.4 million which equals a transaction price of $38,600/acre! 

The asset includes 600 boe/d of production as of March and the company expects production to be approximately 1,000 boe/d by the end of 2012 (sound familiar...)  Estimated proved plus probable reserves is approximately 10.2 mmboe. 

"These long life, high netback assets represent a solid, low risk entry-point for Eagle into one of the most prolific and well-established oil weighted basins in North America.  We believe that the Permian Basin will form a new strong core area of future operations for Eagle.  It is one of North America's most productive oil-weighted basins and has demonstrated, on a recurring basis, the addition of new reserves horizons and enhanced exploitation of existing horizons in the multi-zone stacked pay resource," says Richard Clark, President and CEO of Eagle Energy Trust.

As a comparison, on April 4 Lynden Energy Corporation announced over 500 boe/d after royalty net production and has estimated end of 2012 production of approximately 1,000 boe/d.  Most of this production is located within their West Martin and Wind Farms Wolfberry projects where Lynden owns 3,841 net acres and has 9.8 mmboe of proved plus probable reserves as of 6/30/11.  The Eagle Energy Trust asset acquisition has very similar numbers to Lynden's West Martin and Wind Farms projects.  Should one value Lynden's West Martin and Wind Farms acreage on a similar acreage metric as the Eagle Energy transaction, those lands alone would be valued at approximately $148 million which far exceeds the company's current market cap.  After adding in Lynden's Tubb and Mitchell Ranch acreage, one can conclude that Lynden has incredible potential.

Horizontal Wolfcamp article, etc.

There was a nice article on the Horizontal Wolfcamp published by Oil and Gas Investor magazine.  It's worthwhile reading for those interested.  Here is a link to the article which is located on Approach Resources website: "Horizontal Wolfcamp"

Also, Energen released their Q1 2012 results last week.  Here are a couple of comments from James T. McManus, II, the company's Chairman and CEO:

"As you know there is growing excitement about the horizontal Wolfcamp and Cline potential in the Midland Basin. We currently are participating as a non-operated partner with Laredo in the horizontal Wolfcamp well near our Glasscock County acreage, the early results are encouraging and we’re pleased to be getting some data points that will help us to better assess the potential on our acreage."

"We also are closely monitoring Cline activity in the Midland Basin, obviously, a success of either this plays on our acreage could impact our future drilling plant in the Midland Basin."

Here is the link to the transcript as posted on Seeking Alpha: "Energen Earnings Call transcript"

Friday, April 20, 2012

Another article on the Cline Shale

An article was written on the Cline shale by Nissa Darbonne.  Here are a couple of quotes from it:

"Laredo Petroleum Inc. chairman and chief executive officer Randy Foutch says the Cline shale 'is a world-class shale'."

"The Cline is less known (but) we know a lot about it,” Foutch says. Across at least 80 miles in the Midland Basin, the formation is fairly unchanging north to south, he adds."

Thursday, April 19, 2012

Cline Shale Generating Industry Buzz! Lynden Poised to Benefit

One theme became clear for those who attended Howard Weil 2012, one of the premier investor energy conferences. The Cline shale is generating significant industry buzz! From Concho Resources to Devon Energy to Pioneer Natural Resources, the message was focused on the Cline shale and its vast potential. Companies are finding out that below the Wolfcamp lies this highly prospective zone. They are also discovering that the Wolfcamp (some companies are now grouping the Cline together with the Wolfcamp and referring to both zones as the Wolfcamp) is much more extensive, potentially spanning the entire Basin. Because large Wolfcamp acreage parcels are hard to come by, the play is on the verge of a breakout where companies will have to buy out smaller independents in order to establish a sizeable position.

How to Play the Cline

Many companies are active in the Permian Basin. Pioneer, Devon, Apache, EOG, Chesapeake, Range and Concho all have positions in the Midland Basin and the Wolfcamp. These companies have market caps ranging from $8.8 billion to $36.0 billion. Although these companies should experience an uptick with Wolfcamp success, another company could see multiples of its existing share price.

Lynden Energy Corp. has successful positions in the Wolfberry located at their West Martin project in Martin County and Wind Farms project in Glasscock County. In fact, their current reserves are primarily assigned to just these two areas. Valuations based on these two areas alone would warrant a higher share price.

On April 4, Lynden announced the continued success of their Tubb A #1 well. This well has continued to produce oil in excess of 100 barrels per day over the past 90 days since it was tied in. Should this prospect area ultimately be proven out it would support a significantly higher share price. On 40 acre spacing, there are potentially 170 gross locations with the next well to spud later this month and several more prior to year end.

We believe that Lynden is considerably undervalued based on their Wolfberry holdings at West Martin, Wind Farms and Tubb. Now, how does this relate to the Cline? Lynden has an interest in 103,400 net acres at an area on the border of Sterling and Mitchell Counties called Mitchell Ranch. The market hasn’t yet assigned value to this land. Land around Mitchell Ranch is becoming scarce and exploration of the Wolfcamp shale is developing around the area. Although Chesapeake, Lynden’s farmout partner on the property, is currently only exploring the Mississippian zones below the Wolfcamp at Mitchell Ranch, it is likely that the Cline shale exists throughout their acreage. In fact, Mitchell Ranch is located near the center of the extent of the Cline shale as depicted on a map prepared by Devon Energy in their latest presentation!

Lynden’s net position at Mitchell Ranch amounts to approximately 34,150 acres. As we know based upon recent Wolfberry land sales, successful Wolfberry acreage can sell for as much as $35,000 per acre or more. Should the Cline shale ultimately become a viable source of oil as the industry is starting to believe, Mitchell Ranch could become extremely desirable. Could the acreage ultimately be worth $5,000/acre, $10,000/acre or more? We believe so!

This is where Lynden becomes extremely interesting. At even just $5,000/acre, Lynden is sitting on a very valuable asset. Their 34,150 acres valued at $5,000/acre translates to $170 million. At $10,000/acre this value becomes $340 million. Together with their Wolfberry holdings, Lynden could be a company worth $400 million or more. Given Lynden’s current market cap, this stock has room to run.

It’s easy to see why we are so excited about this company’s prospects. Because Lynden continues to have success in the Wolfberry, the downside risk here is limited. The upside associated with Tubb and Mitchell Ranch is tremendous! Like we have mentioned previously, “Buying Lynden at its current valuation could be looked upon as buying their Tubb and Mitchell Ranch projects for free and Lynden could be a stock worth several dollars per share!”

Tuesday, April 17, 2012

Article about Devon and the Cline Shale

An article posted on Seeking Alpha talks about Devon exploiting the Cline shale.  "Devon has chosen to gain access in another region, exploiting the midland section of the Basin in the Cline formation."  The article further states, "With Devon's setting aside of capital money to continually acquire land, its diversified portfolio, focus on oil, healthy balance sheet, and smart management plays make for a good combined package for a long-term energy company."

Lynden Energy's non-brokered Private Placement

As much as another private placement dilutes the company, we are very excited and view this as a positive.  The ability to add funds and ensure the longevity of the company means that Lynden Energy Corp. will not fall into financial jeopardy.  Given that financing is difficult to obtain in this market, Lynden will achieve a milestone by obtaining $6.3 million should the placement close fully subscribed.  It appears the company’s borrowing base is not accelerating as fast as their drilling but the financing allows some breathing room.

As the volume today shows, the market is clearly supporting the financing.  There are buyers out there who like the story and buying large blocks.  The buyers in the market and those who participated in the financing have apparently completed their due diligence and like what they see. 

We view Lynden’s prospects as better than before the private placement was announced.  Surely, the dilution is not something we were looking forward to but this was anticipated given the rapid pace of development.  The company’s financial future is now ensured until their borrowing base increases.  With support being shown in today’s market and the industry buzz and excitement about the Cline shale, we believe that Lynden can realize its market cap potential and that this stock can return multiples.

Wednesday, April 4, 2012

Lynden releases production numbers and comment about Howard Weil 2012

Lynden Energy Corp. reported production after royalties of over 500 boepd on average over a ten day period ending March 31.  Highest daily production during the period was 595 boepd!  These are excellent numbers demonstrating continuing high production from their Tubb A #1 well as well as shallow declines from their existing wells.

Of significance is that the Tubb A #1 well is still producing over 100 barrels of oil per day.  This number does not include natural gas or natural gas liquids and is 90 days after being tied in.  Should these numbers be replicated, Lynden has some very special acreage.  The Tubb Prospect Area includes 7,341 gross acres of which Lynden's net interest is approximately 2,469 net acres.  Additional success here will surely capture industry attention and Lynden's large acreage puts them in a nice position to capitalize.

Recently, Richard Mason wrote an article about Howard Weil 2012.  The article titled "Operators Hint at Two New Liquids Plays, Major Permian Discovery" is one more leg to Lynden's story.  The apparent industry excitement about the Cline shale is generating a lot of buzz.  Devon, Concho, EOG and Pioneer are all actively pursuing the Cline shale.  "Pioneer and Concho are now suggesting that the prospective Wolfcamp (Cline) spans the entire Midland basin," the article states.  (For those unfamiliar with the Cline shale, it exists just below the Wolfcamp shale zones.  Some companies are grouping the shales together and calling them the Wolfcamp shale.)

Tim Leach, CEO of Concho Resources, commented that they have 45,000 net acres of new holdings and their primary target is the Cline shale.  "The punchline here is we think this play in the northern part of the Midland Basin will be very similar in returns and composition to the Wolfcamp in the southern part of the Midland Basin."

A couple of additional comments from the article.  "Long story short: the horizontal Wolfcamp is on the verge of a substantial breakout in the Permian Bains."  Also, Scott Sheffield, CEO of Pioneer, states "People... will will have to buy out smaller independents.  It will be really tough to get a large acreage position because most land is held by production by the various operators."  Again, Lynden is in an excellent position, because of their 103,400 acre Mitchell Ranch project.  The next few months will be very interesting...

Thursday, March 15, 2012

Pioneer Article on West Texas Shale

An interesting article was written yesterday regarding the West Texas shale.  Titled "Pioneer Bets on West Texas Shale Oil to Rival Bakken", this article speaks highly of the Wolfcamp Shale.  "Everybody is going to be making a beeline to the Wolfcamp," said Scott Sheffield, CEO of Pioneer Natural Resources.

The Bakken formation in North Dakota and Montana is well known but the Wolfcamp could be the next big U.S. play.  The Wolfcamp is potentially the thickest onshore U.S. oil shale play with some areas having over 1,000 feet of pay.  Pioneer, Devon, Apache, EOG, Chesapeake, Approach, Range and Concho are among those active in the Midland Basin.

Lynden Energy Corp., although small relative to the companies mentioned above, has a large position on the eastern shelf of the Midland Basin.  Their Mitchell Ranch project includes over 103,400 contiguous acres.  They have a 50% interest in 68,400 net acres and 1.25% royalty over 35,000 acres that were farmed out to Chesapeake Energy.  They have already had success with their Spade 17-1 well there and we believe it's only a matter of time before one of the majors comes knocking at their door.  Once the market realizes this, LVL's undervalued share price can only go up!

Thursday, March 1, 2012

Lynden releases MD&A

Lynden released its MD&A for the six month period ending 12/31/11. It appears that Lynden Energy Corp. has made production increases over the last month or so.  Stated average production as of 12/31/11 was 471 boepd before royalties.  The company's production exceeded 500 boepd after royalties for several days in January and February meaning their before royalties share of actual daily production was around 650 boepd.  Production is finally catching up to Lynden's drilling activity as several wells that were completed are now being tied into sales.  We expect production to increase further as additional completed wells are tied in.

Industry activity seems to be heating up in the areas where Lynden is active.  Devon is active in the Wolfcamp west of Lynden's Mitchell Ranch and Apache is working on lands adjacent to the Wind Farms acreage.  As acquisition activity increases, Lynden should be in an excellent position to capitalize given their quality acreage.

Saturday, February 11, 2012

Energen to acquire Wolfberry property

Energen announced that they plan to acquire 3,200 Wolfberry acres for $65.8 million on Friday.  They are acquiring the acreage from a private seller.  The metrics for this deal equate to $20,300/acre. 

With all of the recent Wolfberry sales, we believe that it's only time before the market realizes the value of Lynden Energy Corp.'s Wolfberry land.  See our previous post for our valuations based upon Lynden's acreage.

Sunday, February 5, 2012

Lynden Update and Valuation

Lynden Energy Corp. has shown steady volume and an increase in their stock price culminating with a spike at the end of the day on Friday since news was released on their first Tubb well.  Success at Tubb has the ability to add considerable value to Lynden's reserves and market cap.  We have run an acreage valuation to demonstrate the huge upside potential in Lynden.

The current market cap of $45 million puts an average value of $1,112/acre over Lynden's West Martin, Wind Farms, Tubb and Mitchell Ranch land.  Assigning no value for Mitchell Ranch still values Lynden's Wolfberry acreage at only $7,132/acre.  Given that good Wolfberry land is selling for up to $35,000/acre and the developing land rush for acreage near Mitchell Ranch, we can calculate the tremendous upside in Lynden.  Looking at these valuations shows the huge potential in Lynden!

                             Acreage        Low            Mid               High
West Martin/WF     3,841           $20k/acre   $27.5k/acre   $35k/acre
Tubb                      2,469           $10k/acre   $20k/acre     $25k/acre
Mitchell Ranch      34,150           $2k/acre     $5k/acre       $10k/acre

Total                                         $170 M        $326 M          $538 M

Our low analysis shows a market cap 3.8 times the current market cap.  Our mid and high show 7.4 times and 12.0 times the current market cap.  Tubb's success gives Lynden a very real chance of seeing these increases in the market cap and we believe that once this company becomes better known by the market, Lynden has a chance to achieve these valuations!

Tuesday, January 31, 2012

Exciting News from Lynden!

Lynden Energy Corp. released an update on its Tubb A#1 Wolfberry well.  This is the first well that Lynden and Crownquest have drilled at their Tubb Prospect Area.  This well averaged 109 barrels of oil per day over the first 23 days and 106 mcf/da in the eleven days since it began producing gas.  Lynden has a 35.55% working interest in Tubb and it is likely that with the Tubb production, Lynden is meeting their projection of 500 boe/d.  Of additional significance is that the oil gravity is 43 degrees API which means that the oil that Tubb is producing is of the highest value!

The news release says "Initial results from the well have exceeded management's expectations and are suggestive of the significant development potential for the relatively untested Tubb Prospect Area."  It also states that there could be approximately 170 gross wells developed on the acreage. 

Since the market appears to be valuing Lynden on the West Martin and Wind Farms acreage only due to that being the area that has current reserves, success at Tubb has the ability to dramatically increase value.  Tubb is on the eastern edge of what is considered to be the fairway of the Wolfberry Trend but if it is ultimately proven to be an area that is developable, then the market should start assigning value to Lynden's Tubb land.   Lynden's net Tubb acreage is 2,470 acres and a valuation of only $10,000/acre would increase Lynden's value by $25 million.  Of course, if the land ultimately becomes as valuable as typical Wolfberry land, then it's possible that values could approach the $35,000/acre that is currently being paid for Wolfberry land.  This news release is indeed exciting news!

Of additional note, Chesapeake received approval to revise their current S150H horizontal well permit at Mitchell Ranch last week.  The revision changes the lateral length as well as revises the well type from an injection well to a producer/oil well.  Chesapeake is actively continuing their drilling at Mitchell Ranch and the change to a producer well is a good indicator.

Wednesday, January 18, 2012

Chesapeake Energy submits amendment to S150H well permit

Chesapeake Energy submitted an amendment application for the S150H horizontal well at Mitchell Ranch today.  They are changing the well type from an injection well to a producer and have modified the lateral.  This may have been their original intent but it appears that there is now a producer well on the land that they leased from Lynden Energy and Crownquest at Mitchell Ranch!

Lynden Chairman buys shares

Richard Andrews, Lynden Energy Corp.'s Chairman of the Board, purchased 401,000 shares in the market yesterday.  It would appear that if the recent trading were based upon a news leak, then he wouldn't have made such a large purchase.  This lends further evidence that the selling started with National Bank liquidating a large part of their position too quickly possibly leading to panic selling by others.  Time will tell but if that's the case, those that have picked up shares in the last few days will be rewarded.

Tuesday, January 17, 2012

Commentary on Lynden Energy's volume and stock price

Lynden Energy Corp. has seen another large increase in selling volume.  The selling appears to have started with National Bank selling a large part of their LVL holdings.  We don't believe the selling is associated with LVL's core Wolfberry holdings as Wolfberry land still commands a high price per acre and Wolfberry lands are a relatively low risk play.  Given LVL's past success rate with their completed Wolfberry wells, it would be hard to believe that the selling is related to that part of their holdings.

Results from LVL's Tubb area have not yet been released.  Again, this part of the Wolfberry play is low risk so the selling should not be related to any news leak from it as the play should only add to the upside.

LVL's Mitchell Ranch project provides the big upside potential for the stock price.  Chesapeake Energy, which has been confirmed as the joint venture partner, has six active well permits.  Most recently, a horizontal well permit was obtained on January 10.  It appears that CHK is spending a large sum on the play and still actively drilling.  A miss at Mitchell Ranch could have a short term negative impact on the stock but we don't believe results are known yet and given CHK's recent permit activity, it looks like they are still drilling.

Overall, we still believe that LVL is a buy.  Based upon their recent success on their core Wolfberry lands and recent Wolfberry transactions, LVL is worth more than twice its current value for the Wolfberry lands alone and should make this a relatively safe investment.  It appears that LVL is an easy double from these prices.  Our guess is that National Bank wanted out for a reason possibly not related to LVL.  If that's the case, then that makes LVL a strong buy at these levels.

This is just an opinion and please complete your own due diligence.

Tuesday, January 10, 2012

Thom Calandra article about Lynden Energy and recent Chesapeake drilling permit activity

Thom Calandra wrote an article on Lynden Energy (click here to read it).  He states that "should Mitchell Ranch prove up in terms of barrels of oil per day in a big way, Lynden's 50-cent shares will quadruple in short order."

One thing to note about Lynden that we have written about in the past is that Lynden has proved up a good portion of their West Martin and Wind Farms Wolfberry acreage.  That acreage adds up to 3,841 acres and good Wolfberry acreage is selling at upwards of $35,000/acre these days.  Adding in their 2,469 acres of Tubb Wolfberry land which they are currently drilling and Lynden's stock looks cheap!  The valuation of their Wolfberry lands alone set a floor for the company's market cap and should they achieve success at Mitchell Ranch, Thom Calandra's statement about quadrupling could easily occur. 

Chesapeake appears to be actively drilling at Mitchell Ranch, they have obtained several drilling approvals recently.  Here is a summary of their drilling permit activity at Mitchell Ranch:

S149 Vertical Well (approved 8/1/11)
S150H Horizontal Well (approved 8/4/11)
S249 Vertical Well (approved 8/4/11)
S250H Horizontal Well (approved 8/4/11)
S350H Horizontal Well (approved 8/4/11)
S149 (amended 9/1/11)
S250H (amended 11/29/11)
S250HR Horizontal Well (approved 12/23/11)
S450H Horizontal Well (approved 12/27/11)
S450H (amended 1/10/12)

It is encouraging to see Chesapeake's recent drilling permit activity.

Tuesday, January 3, 2012

Chesapeake permits two more wells at Mitchell Ranch

Chesapeake Energy has permitted two additional wells at Lynden Energy's Mitchell Ranch property.  The S250HR horizontal sidetrack well was permitted on 12/23/11 and appears to be in the same proximity as the original S250H well.  An amendment to S250H was permitted on 11/29 and looks to be a permit to shorten the original horizontal run.

The S450H horizontal sidetrack well was permitted on 12/27/11 and is indicated to be a new injection well.

Chesapeake is continuing to permit new wells at Mitchell Ranch and hopefully results will be released soon.