Buying opportunity?

 Along with oil prices, Lynden Energy Corp. has taken a big hit the last few weeks.  The stock price is down over 40% from its high reached on September 2.  This has created a tremendous buying opportunity.  Lynden has acreage located in the heart of the Permian Basin.  Is this a high risk/high reward investment?  Those who have read the analysis on Seeking Alpha in August and agree with the summary can argue that there is little risk in this investment. 

Lynden Energy has zero net debt and a market cap of $80 milllion (US).  With 5,883 net acres in the Wolfberry, Lynden’s per acre valuation is $13,500/net acre (US).  Wolfberry land deals over the past year have averaged $43,870/net acre (US). 

One can look at the valuation metrics a number of ways but the conclusion remains the same, Lynden Energy is undervalued!  Those who have the patience and confidence that LVL will eventually find a suitor to acquire their Wolfberry acreage could realize the significant upside. 

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.

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!

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.

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.

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.

Lynden releases Annual Report and MD&A

Lynden Energy Corp. released their 2011 Annual Report and MD&A for the quarter ending 9/30/11.  Several items are worth noting: 

-          Gross producing wells expected to be 22 by 12/31/11 and 51 by 12/31/12. 

-          Net producing wells expected to be 9.44 by 12/31/11 and 21.79 by 12/31/12.

-          Average production of 448 boe/d for three month period ending 9/30/11.

-          Average selling price of natural gas, $8.82/mcf!  This is a great number indicating the presence of liquids.

-          Earnings per share for the quarter ending 9/30/11 are $0.05/share!

-          Revenues have increased from $668,862 (12/31/10) to $1,481,204 (3/31/11) to $1,869,753 (6/30/11) to $3,136,991 (9/30/11).  This is an increase of 369% since 12/31/10.

With the rapid development program on schedule for 2012, we should see revenues increase even more.

Colin Watt, President and CEO of the company had these comments:

-          "We see potential to expand our Wolfberry Project by upgrading the reserves through successful develoment drilling."

-          "Our rapid oil and gas development program is ongoing.  Current plans call for 31 gross Wolfberry Project wells to spud in 2012.  This pace of development drilling will result in significant increases in production rates in 2012."

Lynden is anticipating an exciting 2012 with significant growth and their enthusiasm permeates throughout their comments.

Tax Loss Selling Makes Lynden a Buy

Tax loss selling appears to be dragging Lynden Energy Corp. down.  Shares are trading in the $0.40 range giving the company a market cap below $40 million. 

A $40 million market cap values the 3,841 acres that Lynden has at their West Martin and Wind Farms projects at $10,000/acre.  The market cap does not reflect any value for the Tubb and Mitchell Ranch prospect areas.  The West Martin and Wind Farms areas include 9.8 mmboe of proved and possible reserves for the company and is in an area where Wolfberry land is selling for up to $35,000/acre.

Given the proposed NCIB buyback that will be taking place shortly, current drilling of their West Martin and Wind Farms area, forthcoming results from their first Tubb well and exploration by Chesapeake Energy at Mitchell Ranch, Lynden's price appears ready to bounce.  Now seems like the time to take advantage of tax loss selling and represents a tremendous buying opportunity!

Energen and Linn Energy acquire $317 million in Wolfberry acreage, could this mean buying Lynden is like buying an oil field for free?

Energen Resources Corp. and Linn Energy plan to acquire Wolfberry packages totaling $317 million in the Permian Basin.

Energen announced that they will purchase two Wolfberry packages for a total of $211.9 million. The properties are located in Martin, Howard and Glasscock counties and include production of 1.5 mboe/d, proved reserves of 17.08 mmboe, and proved plus probable reserves of 24.24 mmboe. The metrics for this deal are $4/boe for probable reserves, $10.46/boe for proved reserves and $119,073 per boe/d according to Derrick Petroleum Services.

Linn Energy announced that they signed purchase agreements for two bolt-on acquisitions in the Wolfberry for $105 million including net production of 800 boe/d and proved reserves of 8.3 mmboe. Metrics for this deal are $12.65/boe for proved reserves and $131,250 per boe/d per Derrick Petroleum Services.

Here is what is interesting, comparing these deals/metrics with Lynden Energy Corp.'s latest news releases confirms Lynden's Wolfberry value and reveals its tremendous upside at their Tubb and Mitchell Ranch projects!

From Lynden’s news release on October 28:
- Proved plus Probable reserves are 6.77 million barrels of oil and 18.15 bcf of gas (9.8 mmboe) as of 6/30/11. These reserves are attributed to the West Martin and Wind Farms lands in Martin and Glasscock Counties.
- Proved reserves are 3.29 million barrels of oil and 8.63 bcf of gas (4.73 mmboe).

From Lynden’s news release on October 13:
- Daily production is 423 boe/day.

Using Energen deal metrics for Lynden’s reserves equates to $69.8 million (5.07 mmboe x $4/boe + 4.73 mmboe x $10.46/boe = $69.8 million). Using Energen’s production metrics for Lynden equates to $50.4 million (423 boe/d x $119,073 = $50.4 million).

Using Linn deal metrics results in Lynden proved reserves equal to $59.8 million (4.73 mmboe x $12.65/boe = $59.8 million) and based upon daily production equal to $55.5 million (423 boe/d x $131,250 = $55.5 million).

These two deals demonstrate valuation of Lynden’s West Martin and Wind Farms Wolfberry lands alone to be between $50.4 million and $69.8 million. These values are based upon reserves as of 6/30/11 and 423 boe/d production. Of course, as Lynden’s production grows towards 500 boe/d, these values increase even more.

Several points should be noted:
- These valuations are higher than Lynden’s current market cap but provide a reasonable value of their West Martin and Wind Farms Wolfberry Projects.
- West Martin and Wind Farms are located in the same counties as the Energen deal lands.
- Tubb property in Howard County and Mitchell Ranch do not have any reserves or production attributed to them in the above analysis

Adding in Lynden's other lands results in tremendous upside potential!

Lynden’s West Martin and Wind Farms net acreage equals 3,841 acres (43.75% x 5,488 + 30.625% x 1,127 + 43.75% x 2,503 = 3,841 acres).

Lynden’s Tubb net acreage equals 2,469 acres (35.5% x 6,956 = 2,469 acres).

Mitchell Ranch net acreage equals 34,150 acres (50% x 67,400 + 1.25% x 36,000 = 34,150 acres).

Using a valuation of $60 million for the West Martin and Wind Farms acreage, knowing that Tubb is likely to have Wolfberry success (conservatively estimating $10,000/acre valuation for Tubb lands), and assigning a valuation of $2,000/acre for Mitchell Ranch results in a potential value of over $150 million or three times the current market cap. Upside includes additional value to be realized at West Martin and Wind Farms, potential success at Tubb resulting in valuation up to $25,000/acre or more, and potential success by both Lynden in the Wolfcamp at Mitchell Ranch and Chesapeake in the Mississippian resulting in potential valuation of up to $10,000/acre. It’s clear to me that Lynden has huge potential! Approaching anything close to those valuations could mean that Lynden could eventually have a market cap worth several hundred million dollars.

What does this all mean? The opportunity is out there to buy an oil field in the exploding Permian Basin for FREE! How? Given the above mentioned valuations, it’s easy to see that the company is valued for its West Martin and Wind Farms Wolfberry assets alone. The valuations DO NOT take into account the Tubb or Mitchell Ranch areas. Buying this stock is like buying the company's developed assets which are worth the value of the stock alone - together with the Tubb and Mitchell Ranch project for FREE! There is tremendous upside potential in the Tubb Prospect Area which is a relatively low risk play in the Wolfberry and the Mitchell Ranch land which CHK paid a good amount for and is spending a large sum to determine the viability of development of the Mississippian zone.

Buying Lynden at its current valuation could be looked upon as buying their Tubb Prospect Area and Mitchell Ranch Project for free and Lynden could be a stock worth several dollars per share!


Just our opinion and please do your own due diligence.

Lynden Provides Update

Lynden Energy Group released an update on their Wolfberry and Mitchell Ranch projects yesterday. Highlights include:

- The Wolfberry Project now has 19 gross wells tied-in and producing.

- Lynden's share of production is 423 boe/day over the last 30 days, of which 72% is oil.

- Lynden's current Wolfberry development is primarily in Martin and Glasscock Counties and includes 3,841 net acres. Their Wolfberry development is low risk and they have had 100% success with their wells.

- Lynden also has 2,469 net acres in the Tubb Prospect Area in Howard County with their first well scheduled to spud in late October.

- Lynden has approximately 34,150 net acres at their Mitchell Ranch Project.

- Keith Schaefer from the Oil and Gas Investments Bulletin has stated that Lynden's JV partner at the Mitchell Ranch is Chesapeake Energy! This is extremely significant in that Chesapeake has been very active in accummulating Mississippian play acreage and is one of the largest E&P companies working in the area. Chesapeake has undertaken a "multi-well vertical/horizontal drill program" at Mitchell Ranch.

- Lynden has achieved success in three Wolfcamp intervals at their Spade 17 #1 well at Mitchell Ranch.

Lynden Energy up 18% today!

Lyden Energy Corp. traded up 18% today on above average volume.

With the recent release of encouraging results from Spade 17-1 and partnering with a large company to exercise the Mitchell Ranch, Lynden should be trading much higher. Maybe this is the beginning of Lynden finally attracting some market attention. We believe that Lynden has a lot of upside potential based upon its success in the Wolfberry and lease of the Mitchell Ranch.

Laredo to buy Broad Oak for $1 billion

Laredo Petroleum LLC announced today that it is buying Broad Oak Energy for $1 billion. Broad Oak holds about 65,000 acres in the Wolberry trend and produces about 5,000 bo/day. This transaction equates to over $15,000/acre.

Lynden posts updated Inverstor Presentation

Lynden Energy Corp. has posted a new Investor Presentation on their website. A couple highlights:

1. Wolfberry project now includes 5,985 net acres with 250 BOE/day and estimated production of 450 to 500 BOE/day by the end of 2011.

2. Lynden has 9 gross producing Wolfberry wells and 7 that have been spud or awaiting completion. They have a 43.75% working interest in all but one of those wells. They anticipate 23 gross producing wells and 5 spud by the end of 2011.

3. "Repeatable nature of Wolfberry allows for conservative use of debt financing." This would reduce the need to issue more stock preventing further dilution.

4. Developing "Land Rush" throughout the Eastern Shelf of the Permian Basin with the Mississippian as the primary driver. The Mississippian is being developed in Eastern Oklahoma on similar rock packages as exists at Mitchell Ranch by Chesapeake, Eagle Energy, Sandridge and Range Resources.

Lynden Energy Corp.

By our analysis based on the recent news release and articles by Canaccord Genuity and Keith Schaefer, Lynden Energy is significantly undervalued. The $0.50 current share price values the company at a $50 million market cap. The stock price should be trading much higher given the facts.

Here’s another way to look at Lynden’s assets: Canaccord Genuity’s Daily Letter assumes an average recovery of 190,000 barrels per well and 180 net drilling locations. This correlates well with 40 acre spacing and 6,000 net acres (150 net well locations). This equals 30 million barrels of oil ultimately recoverable. Using an industry standard potential transaction metric of $17/barrel if this oil were proven, Lynden’s Wolfberry could be worth over $500 million. If these are just probable/possible reserves, then they could be valued at $5/barrel. Even at $5/barrel, LVL’s 30 million barrels of oil are worth $150 million.

The Daily Letter further states that Lynden expects their Harrell 34 #1 well to ultimately recover 408,000 barrels of oil due to drilling down to the Mississippian limestone and production from the Atoka interval. Lynden and CrownQuest have shown to be innovative in their drilling approach by deepening their wells and are achieving some of the best results in the industry. Lynden’s association with CrownQuest gives them vast experience in the Wolfberry as CrownQuest has successfully drilled over 180 Wolfberry wells to date.

Recent Wolfberry land transactions have been reported to be anywhere from $20,000/acre to $40,000/acre. With $20,000/acre and 6,000 net acres, their land could be worth $120 million. This valuation provides another metric that validates Lynden’s potential.

Lynden’s Wolfberry land is in areas that are surrounded by proven Wolfberry wells. It appears that with the success they’ve had with their Wolfberry wells, their Wolfberry land is relatively low risk. This is evidenced by the Cawley reserve report released last year which stated that Lynden had 8.25 million barrels of proved plus probable reserves and this report covered only a portion of their Wolfberry lands.

Given the recent release of initial results from their Mitchell Ranch Spade 17 #1 well, there is now some valid evidence that this area could have productive Wolfcamp wells. With over 50,000 net acres in that area, even a valuation as low as $2,000/acre (the recent March University Land Sale netted an average of $2,400/acre demonstrating the confidence that Permian Basin oil and gas operators have in the basin) result in an additional value of $100 million for Lynden. With additional success at Mitchell Ranch, the stock price could be multiples of what it is currently trading at.

Given Lynden’s existing production in the low risk Wolfberry and the potential for the Mitchell Ranch lands to add SIGNIFICANT value, Lynden has a lot of value that is not currently recognized by the market. This is a great story and it’s only a matter of time before the market takes notice.

Lynden Energy releases encouraging results fom Mitchell Ranch Spade 17 #1 well

Lynden Energy Corp. today announced "significant results from an uphole Wolfcamp completion in the Spade 17 #1 well on the Mitchell Ranch Project." In the last eight days since oil production began, the well has averaged 84 barrels of oil from only the upper zone interval. This is SIGNIFICANT news in that the Mitchell Ranch is largely an unproven area and 84 barrels far exceeds expectations. Should these results be confirmed by additional wells, Lynden's 50% share of the over 100,000 acre Mitchell Ranch could be worth several hundred million dollars (i.e. 50,000 acres x $10,000/acre = $500 million!)

"Management is extremely encouraged by the intial production volumes from this recent completion." The well is still unloading frac water and further improvement in IP rates could still occur.

Currently, at a stock price of $0.48/share, it appears that the only value recognized by the market is a portion of Lynden's Wolfberry assets. We believe that the Wolfberry assets alone are worth over $1.00/share. Once value for the Mitchell Ranch is realized, Lynden's stock price could be (and should be) several times what it is currently trading at!

This news is the type of news that won't go unnoticed, even for a company as unknown as Lynden. We expect Lynden to start attracting much more market attention with this news. Lynden presented at the recent Permian Basin Field Trip held by Canaccord Genuity further demonstrating that people are starting to pay attention to this company.

Antares Energy and Berry Petroleum announce Permian Basin acquisitions

Antares Energy released news yesterday stating that they acquired Wolfberry assets in Western Howard County for $62 million for 3,109 net acres. This acquisition equals $19,942/acre.

Also, Berry Petroleum announced that they have entered into agreements to purchase 6,000 net Wolfberry acres for $123 million. This equals $20,500/acre.

Two good comps for Wolfberry/Wolfcamp and Lynden Energy!

Approach Resources announces update on Wolffork

Approach Resources released their 2010 reserves and an update on the Wolffork today. They are encouraged by their Wolffork wells. Their average IP’s from vertical wells in the Wolfberry are 50 Boe/d to 75 Boe/d. Approach has seen an almost 500% increase in their stock price in the past year mainly attributable to their success in the Wolfcamp shale.

Lynden Energy's Wolfberry wells are getting much better results than this and demonstrate the quality of their land and ability of their operator to successfully complete Wolfberry wells.

LINN Energy announces $238 million purchase of Permian Basin and Wolfberry Trend properties

LINN Energy announced two deals worth $238 million consisting of Permian Basin and Wolfberry Trend properties. The properties are reported to have about 180 potential oil drilling locations.

Canaccord Genuity Releases Research on Pioneer Natural Resources

Canaccord Genuity released a research report on Pioneer Natural Resources today titled "Drill Baby, Drill!" in reference to its Permian Bain play. Canaccord believes that "the Permian Basin is the most underappreciated basin in the Lower 48." Pioneer's exploration and Canaccord's report continues to highlight attention to the Wolfberry and Wolfcamp trends which is referred to as a "world-class" oil play.

Of note, the report states that the Wolfcamp Oil Shale trend may span a 19 county area of West Texas. Should this trend extend to Lynden Energy's Mitchell Ranch, Lynden could be on to something big with their 50% interest in over 100,000 acres.

Besides the Wolfcamp and Wolfberry intervals, Pioneer also believes that the Strawn and Atoka intervals could be prospective.

Lynden announces update on Wolfberry and Mitchell Ranch projects

Lynden Energy Corp. (LVL) announced that they have tied three new Wolfberry wells into production for a total of eight gross wells. The first well is averaged 79 bo/d and 136 mcf/d over the first 32 days of production. The second well has averaged 49 bo/d and 71 mcf/d over the first 13 days. Lynden's third well is in the Wind Farms area and averaged 90 bo/d and 215 mcf/d over 22 days. Flow rates of all three wells appear to be improving with time. These three wells all appear to be successful and Lynden says that "initial results from the wells are very encouraging."

Lynden expects to drill one new Wolfberry well each month this year and seven new wells are expected to be spud by the end of May. Lynden's success with developing their Wolfberry project continues to derisk their land and increases the company's value. Their recent results validate Keith Schaefer's (Oil and Gas Investments Bulleting) low end valuation of their Wolfberry lands at $0.97/share.

Lynden also announced that their first Mitchell Ranch "has been consistently producing oil and gas at rates that exceed the economic threshold." This is significant news as it's the first indication that the Mitchell Ranch could be a viable project. If they can continue this success with future wells, their valuation could be up to $20,000/acre for their Mitchell Ranch project ($20,000/acre x 50,000 acres = $1 billion).

Once the investment community finds out about Lynden, it's a good bet that their market cap will approach the numbers that others are getting for comparable land. This means that Lynden has the chance to increase by 10X!