Interesting article on Cline Shale

The Oil and Gas Journal has an interesting article on the Cline Shale (click here to view).  Mitchell County and Sterling County are right in the center of the Cline Shale area as shown on the map in the article meaning Lynden Energy's Mitchell Ranch is also in the heart of the Cline Shale area.

Sinochem buys stake in Pioneer's Wolfcamp shale play

Pioneer announced that it will sell a stake in their Wolfcamp shale play.  The sale is valued at $1.7 billion and includes a 40% interest in 207,000 net acres.  The sale equates to $20,531/acre for what we believe to be largely undeveloped acreage.  Pioneer has drilled 39 horizontal wells on the acreage to date.

New wells permitted adjacent to Mitchell Ranch (updated)

Purvis Operating Co. permitted a new oil well, Whiteface 36 #1, adjacent to Lynden Energy's Mitchell Ranch.  The well is located near the northwest corner of the ranch. 

Update - Purvis also permitted another well, Brahman 24 #1, less than a half mile to the southwest of Whiteface 36#1 on 1/28/13.

Click on map for larger version.

 

New Firewheel Well

Firewheel Operating, LLC submitted an application for a new well, Davis Heirs #1111H, located approximately half way between their Horwood well and Mitchell Ranch.  Firewheel's first two wells, Horwood #2151H and H&H Ranch #41 have initial tests of 561 boed and 1,497 boed, respectively.  Firewheel's Cline shale testing is moving north towards Lynden Energy's Mitchell Ranch which is also bordered on the north by Devon's wells. 

A few noteworthy items...

Most noteworthy is the filing by Firewheel Energy that their H&H Ranch #41H well had an initial production rate of 1,250 barrels of oil and 1,484 mcf of gas in a 24 hour test period.  This equals almost 1,500 boed! The location of this well in relation to Lynden Energy's Mitchell Ranch can be seen on the map from the December 6 posting.  This news is very relevant to the potential of Lynden's Mitchell Ranch.


Also, there was a good mention about the Cline Shale on the newswest9.com website (click here for a link to the article).  The article mentions "The energy industry's buzz over the Cline shale is getting louder. The formation has the potential to make a huge impact on the Permian Basin."

Midland Energy Expert Morris Burns says, "This is a huge shale formation."

Geologist Gary Dawson who has studied the Cline for years says, "It's kind of the perfect shale...Right now we're just barely tapping the potential of the Cline Shale."


One other item to note, when searching under JVL and Lynden, it was noticed that JVL Advisors acquired shares in Epsilon Energy Ltd. (click here for the article).  Epsilon is referred to as "Lynden" in the news release.  Not sure if there's any relevance or whether it's just a typo. 

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 www.mywesttexas.com, 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.