Devon exploring Cline Shale

Devon has nine exploratory rigs in the Wolfcamp and Cline Shale areas according to an article released today (click here).

Devon states, "There is good potential for the Cline to develop into a long term play."  Also, "Our geologists and engineers recognize the potential here or we're not going to be here."

Devon spokesman Chip Minty says early results in the Cline "have been encouraging".

Analyst says "So far Cline results have been good"

An article was posted today (click here) on the San Antonio Express News website talking about the Texas oil boom.  Noteworthy was this:

Benjamin Shattuck, an analyst with Wood Mackenzie in Houston, told the San Antonio Express-News that just 80 to 100 wells have been drilled in the Cline, and data is sketchy so far. He expects the industry in six months will have twice as much information on Cline Shale as it does now.  "Operators are doing their best to keep the result confidential," he said. "The big thing in the Cline is that results so far have been good."

Article in Forbes about Texas Shale Oil

There is an interesting article posted by Forbes today on Texas Shale Oil and Gas (click here).

In the article it states, "We are now seeing speculation that the Cline Shale formation in West Texas may well contain more oil than the Eagle Ford."

Clayton Williams Energy Inc.

Clayton Williams Energy Inc. is generating attention today.  It is up 10%.  Clayton Williams owns Wolfberry and Cline Shale property in Sterling, Glasscock and Mitchell Counties just to the west of Lynden Energy Corp.'s Mitchell Ranch.

Article says Devon is excited with Cline wells

Just saw this from the Dallas Business Journal, "Cline Shale Could be the Next Oil Play" (click here for link).

The article says, “Today, I spoke with a Devon official who says the Oklahoma City-based company is excited about what they’ve found with the first six wells.”  This is the first comment that we’ve seen that says Devon is excited about their Cline results.  This is exciting for Lynden Energy Corp. as Devon has several Cline wells along the northern border of Lynden's Mitchell Ranch project.  In fact, their Schlarlarch M#1H well is only 480 feet from their northern border! 

Laredo derisks Wolfberry

Laredo's release today states that they "have reduced the risk and uncertainty associated with this entire acreage block for vertical development of the Wolfberry interval."  They are referring to their Wolfberry Garden City block which runs from the southern edge of Howard County and through Glasscock and Sterling Counties.  As Lynden's Wind Farms property is on the eastern edge of Laredo's Permian Garden City acreage, Laredo is implying that LVL's Wind Farms property is also derisked.  One can begin to value LVL's Wind Farms property at $40,000/acre similar to their recent sale to Breitburn.  Also, Wind Farms has Cline potential as well.

Here is the statement from Laredo's release:

"The Company increased its Permian-Garden City acreage holdings to approximately 145,800 net acres at year-end 2012. Drilling results from more than 800 vertical wells, of which approximately 250 are deep vertical wells, have reduced the risk and uncertainty ("de-risked") associated with this entire acreage block for vertical development of the Wolfberry interval. In addition, based on actual production history from the Company's horizontal wells that have been correlated with core analysis, single-zone tests and supporting industry activity, the Company now believes that it has de-risked the effective equivalent of approximately 360,000 net acres in the Permian-Garden City area for horizontal development from the four stacked zones. By zone, the de-risked acreage consists of approximately 80,000 net acres in the Upper Wolfcamp, approximately 80,000 net acres in the Middle Wolfcamp, approximately 73,000 net acres in the Lower Wolfcamp and approximately 127,000 net acres in the Cline shale. There is significant overlap of the de-risked acreage by zone that provides development opportunities for multiple stacked laterals to utilize common drilling pads and surface facilities. A pilot program to test the vertical and horizontal spacing criteria of the development laterals, within the four stacked zones, is expected to begin in the second quarter of 2013. In addition, the delineation program will continue in 2013 to de-risk additional acreage, by zone, for horizontal development."

Given that Wind Farms is surrounded by Pioneer on the west, Laredo on the east, Range to the north and Apache to the north and south, Wind Farms is very well positioned.  It seems easy to calculate LVL's Wolfberry value and see that Lynden’s Wolfberry pieces alone support a much higher price.

Lynden is covered in an interview in The Energy Report

The Energy Report published an interview (click here for link) with Mat Wilson, an analyst with Pinetree Capital.  He is very bullish on Lynden.  Here is a portion of the interview:

TER: What's an example of a less risky asset?

MW: Two companies that are starting to see a solid de-risking to their asset base are the two that I'm most bullish on in 2013: Lynden Energy Corp. (LVL:TSX.V), which is operating in the Cline and Wolfcamp shales of West Texas, and Americas Petrogas Inc. (BOE:TSX.V) in Argentina.

Lynden is listed on the Toronto Venture Exchange, based in Vancouver, and exploring in Texas, which has kept the story relatively unknown to many investors despite its strong performance in 2012.

Lynden has exposure to more than 100,000 gross acres in the Wolfcamp and Cline shale formation in the Midland Basin of West Texas. We expect the company to report a 2012 exit production rate of about 1,000 barrels of oil equivalent per day (1,000 boe/d) from 7,000 net acres in the middle of the Wolfcamp basin. This land package and production underpins its current valuation of $100 million ($100M) as it recently sold 660 net acres for $25M.

What's more exciting here is that the company holds 50% of 68,000 gross acres in Mitchell County. This property is in the middle of Devon Energy Corp.'s (DVN:NYSE) 560,000-acre Cline shale package, which is only beginning to be explored.

Following the money, Sumitomo Metal Mining Co. Ltd. (STMNF:OTCPK) recently paid Devon $340M in cash and is committed to spend more than $1 billion ($1B) for just 30% of the ground in the basin. The majority of that is going to this Cline package, which Lynden's ground is right in the middle of.

Just south of this area, Sinochem International Corp. just paid Pioneer Natural Resources Co. (PXD:NYSE) $500M in cash and is spending $1.2B to drill 86 horizontal wells in the Wolfcamp. This is adding fuel to the fire in what is turning out to be one of the more exciting American domestic oil plays.

Lynden's plan for the year is to continue to push its Wolfcamp production and probably drill a well on its Mitchell property to prove the Cline shale extends through its ground.

TER: What was Lynden's production last year and what's its production guidance for this year?

MW: Lynden came into 2012 producing 300–400 boe/d and its guidance throughout the year was to exit 2012 with 1,000 boe/d. Lynden will be reporting soon and we expect its exit production to be in line with its guidance.

TER: What's the plan to expand that production in 2013?

MW: These are not very expensive wells, so Lynden will continue to rely on its $30M borrowing base to expand production as it has been doing for the last year.

TER: It sold roughly $25M worth of acreage. What are the plans for that cash?

MW: That cash brought down the borrowing base to essentially zero to allow the company to continue pushing forward on its production expansion.