The good news just keeps on coming for Leni Gas & Oil (LSE: LGO), and with a number of disappointments in the Falklands basin for other explorers in recent years, I’m pleased to see investors who take on this kind of risk getting some reward.
The latest was Monday’s update on the firm’s Goudron field, with the newest well, known as GY-669, having found oil. The well, which is the sixth of the 30 planned development wells in the field in Trinidad, encountered 227 feet of net oil pay.
New design
This well encountered, in addition to the main Goudron Sandstone target, some thin high-pressure gas sections in the Upper Gros Morne, with chief executive Neil Ritson telling us that “The new well design, with three casings, is proving valuable in isolating the thin gas stringers in the formation above the Gros Morne Sandstone reservoir“.
Leni’s shares have six-bagged over the past 12 months, as the good news from those wells has been coming in thick and fast — every well drilled in the field so far has been a big success.
Questions
The big question, so early in the company’s exploration of the Goudron field, is whether it has been lucky enough to have hit a productive area at the start with possible disappointments to come once more of the planned 30 wells are in action, or whether the whole field will prove valuable.
I’m no oil exploration expert, but Leni’s repeated successes so far in finding oil in the Gros Morne Sandstone reservoir exactly where it expected it, together with its discoveries in the the Upper Gros Morne, really make me think the company has done its homework right — and I’m expecting the flow of positive drilling updates to continue.
The other question is what price is a good price for Leni’s shares right now. At 5.24p at the time of writing, they’re up nearly 10% since the latest news was released, and they’ve six-bagged over the past 12 months. But with no profits yet, it really is impossible to tell whether that’s a good-value price or not.
Even in the past couple of weeks, the price has been very volatile, so the balance between optimism and pessimism is a fine one — and it would probably only take one modestly-disappointing drilling result to lop a fair chunk off the share price.
A good thing?
But for those prepared to sit out the short-term volatility, Leni could turn out to be one of the most exciting oil and gas exploration investments in recent years — though if you are a shareholder, I do hope your investment in Leni is a part of a diversified portfolio!