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. 

Comstock acquires Wolfcamp property

Comstock Resources announced a deal to acquire prospective Wolfcamp land for $332.7 million. The deal includes 44,000 net acres, 1,400 boe/d and 23.2 mmboe proved. Metrics for this deal are $7,561/acre and $14.34/boe proved.

These comparables further validate the analysis completed in the October 31 post.

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 converts Mitchell Ranch option into lease

Lynden Energy Corp. announced today that it has exercised its option on the Mitchell Ranch and converted it into a lease. They have also leased 35,000 acres to a large, independent eploration and production company.

This appears to be a very good deal for Lynden as they now own the lease for the Mitchell Ranch. They will also retain a 1.25% royalty interest. Also included is the return of the mineral rights above the base of the Strawn formation.

The most significant part of this deal is the sharing of technical information between the large company and Lynden. Because the large company is targeting the rights from the Strawn and below, they will be drilling through the Wolfcamp. Lynden and CrownQuest will be able to review the logs to gain further understanding of the Wolfcamp at the large company's expense. Also, a deal with a large company provides opportunities for a potential buyout in the future.

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!

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.

Article promoting Wolfcamp shale play published by Right Side News

An article was published today (click here to view) promoting the Wolfcamp/Wolberry shale play. They say that Approach Resources calls it a "source rock that is world class and says it has mineral composition and lithology similar to the Eagle Ford."

El Paso Exploration compares the Wolfcamp with the Eagle Ford play and says it has twice the net thickness and twice the carbon content. They also say that the carbon content of the Wolfcamp is about 60% of the Bakken but has thickness that is multiples of the Bakken.

This is a good article that briefly summarizes many of the companies exploring the Wolfcamp/Wolfberry shale play.