Leni Gas & Oil (LSE: LGO) shareholders should be celebrating today after news of an oil strike at well GY-665 exploring the Goudron sandstones in Trinidad. The share price gained 0.8p (26%) to 3.8p as a result, contributing to a three-bagger in just two weeks!
The GY-665 well is the second of 30 new ones, and has hit 687 feet of gross oil-bearing sands at its primary target covering depths of 2,006 to 2,693 feet.
Drilling will be stopped now at 2,750 feet, because the oil discovered so far is of such high quality there’s no need to take on the operational risk of continuing on to further targets. It will help get production online more quickly too.
The new strike comes hot on the heels of well GY-664, which started production just a week ago at a rate of 240 barrels per day — and that’s clean oil under natural pressure, with no water or sand. The firm reckons that GY-665 will be comparable.
With the Goudron field looking so good, Leni is set to get a second drilling rig started up in the region to accelerate its exploration scheduled. Chief executive Neil Ritson was understandably enthusiastic, telling us that the latest developments “give the Company greatly increased confidence in accelerating the redevelopment program“.
It’s not been easy
What should we take from this as Foolish investors? Well, my first response is to be happy for Leni shareholders — the world needs folks like that who are prepared to take the big risks, and it’s good to see them enjoying the rewards.
But we mustn’t let a good-news story distract us from the actual risk of oil & gas exploration.
You see, even after this rapid appreciation, the Leni share price is still only back to where it was in 2007 and is way down from its peak of nearly 10p in late 2008.
Over the same period, you’d actually have done a lot better with a plodding blue-chip like Unilever.
And that’s typical of the business — initially there’s a lot of enthusiasm, but as the profitless exploration years drag on, investors move on and the share price gradually slides.
The end of the beginning
Of course, this is hopefully just the start (finally) for Leni, and we may well see further multi-bagging returns over the next few years. But bear in mind what would have happened had success remained elusive as it has for so many others — and don’t stake too much of your portfolio on the search for the black stuff.
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Alan does not own any shares in Leni Gas & Oil. The Motley Fool owns shares in Unilever.