LGO UPDATE

LGO today announced that Well GY672, the first well in its 2015 drilling programme of 7 wells has reached TD at 3,608 feet. Total oil net pay encountered was estimated at 496 feet, comprising of 336 feet in the Gourdron Sandstone at 1,100 - 1,700 feet, and 160 feet in the deeper C-Sands at 2,460 feet.

Drilling at GY672 was done 10 days earlier than the previous wells, which showed improved efficiency.Drilling of Well GY673 will begin imminently.

Total production has fallen to 1,550 bopd compared to the earlier estimated 2,000 bopd.

However, with a 12 well recompletion in place, production is expected to touch 2,000 bopd.
The first recompeltion well is done, pending further clean up.

With 7 new wells, I believe LGO's production could grow by 50% (conservative) to 100% (optimistic). 

The share price dropped early this morning as investors exited when news of the drop in production came in. I am not perturbed due to the following reasons:

1) Many of LGO wells have been choked back to reduce production in view of the unattractive oil price. There was a well which had an open flow rate of 6,000 bopd which was choked back to 1,000 bopd. Another had a completion of only 30 feet whereas the net pay was 248 feet in the C-Sands.

I believe LGO purposely choked back the production because of the oil price while also avoiding a mandatory payment of $2 million to the previous vendor whom LGO bought the field from in the event production exceeds 2,000 bopd.

2) LGO just ordered a LACT meter to measure continuous flow of oil to Petrotrin, and a new 5,000 barrels storage tank, increasing the storage capacity to 7,750 barrels on site. Petrotrin had also built a larger pipe linking the Goudron Field to its refinery. Now, would all these have taken place if LGO had no intention to uplift its production?

3) With the additional drilling information being included in the CPR to revalue LGO's Goudron Field, one thing is certain. The Field is getting bigger and the oil asset larger. An increase in oil price too will help in boosting the reserves value. This will likely happen in June, which is just less than 2 months away.

My disclosure: I am long LGO