LGO announced that its last well, GY678, encountered a setback when they could not recomplete the well and thus had to seal the well. This is a grave setback as many were hoping that GY678 which encountered 480 ft of net oil pay in the C-Sands could improve the company's oil production greatly.
With this setback shares of LGO plummeted more than 30%.
With almost US$1.9M spent on the well, including a potential liability when the boring equipment got entangled with the pipe (further investigations will be conducted to find out what actually happened), could put LGO in breach of its cash ratios covenants in the BNP loan.
However, management reiterated that LGO will continue with its programme to drill the Goudron Sandstone to continue to generate cash flow, and has enough cash to pay its monthly payment to BNP.
I view this setback gravely as it means derailing some of LGO's plans.
Nevertheless, these are often the risks associated with resource companies and these risks are often high. So it is important that you always do your own research as our tolerance for risks often differs.
My disclosure: I own shares of LGO.
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