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.

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