WHY LGO SHARE PRICE COULD RISE 200% IN THE NEXT 18 MONTHS

LGO is currently drilling the second well GY-673 on Pad 4 and is expected to reach TD by next week. LGO is expected to drill 12 new wells this year with the remaining 10 wells in 2016.

The wells drilled this year will be more productive than those drilled in 2014. On top of that the cost of drilling the wells have also fallen significantly due to the following factors:

1) The use of a triple casing which will help to maintain the integrity of the well and stabilise the production
2) The use of a smaller rig which improve the turn around time of the rig. This has resulted in cutting the cost per drill

3) The wells are drilled during the dry season, therefore improving the efficiency per drill 

In fact 2) and 3) have resulted in cutting down the cost per drill by almost 40%. LGO's drilling campaign for 2015 - 2016 is also fully funded by BNP. You have to ask yourself this question, why a renowned bank would back a small company like LGO unless they see a similar potential. 

LGO has applied for 30 new wells to be drilled in the Goudron Field. In the event this is approved, will see total new wells in the field increase to 60. Using a conservative assumption that the remaining 22 wells will produce 150 bopd on the average, we would have 3,300 bopd + current production of 1,550 bopd = 4,850 bopd towards the end of next year. That is more than double the current production. At today's price of 3.28 pence at 1,550 bopd, you can see how much the potential rise can be. On top of that we may have a few wells which may surprise on the upside, similar to GY670 which produced more than 1,000 bopd after completion.   

Add in the potential of another 30 new wells which upon approval, will add at least another 4,500 bopd to the count, and you will see that LGO has a bright future ahead. 

There must be reason why Petrotrin is building a new pipeline to Goudron, and LGO purchasing a LACT meter and new 5,000 barrels storage capacity at Goudron.

There is also a CPR to look forward to in the next 8 - 12 weeks which could potentially increase LGO's reserves by a big amount (several hundred percentage points).

Then there are the Spain oil field which LGO has submitted an application to renew the licence for exploration, and the Cedros Peninsula which sits right in the middle of the rich east Venezuelan Basin.

Also, there is the next round of bidding for E & P licence in the Trinidad which I think LGO has the advantage having partially sponsored an airborne survey whereas other competing companies had not the resources to do so. Any acquisition of new assets could also see LGO price gaining ground.

In 18 months I believe LGO could easily gain 200% (baring any disaster caused by nature). But if you are in for the long term, with Spain and Cedros becoming prolific producing assets in 2- 3 years time, you could see LGO gaining in higher multiples from the current share price.

My disclosure: I am long LGO. However, always do your own research as our risk appetite varies.