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!