Why Leni Gas & Oil PLC Is Surging


2014 just keeps getting better for investors in Leni Gas & Oil (LSE: LGO), with shares in the exploration company now being up a whopping 747% year-to-date following today’s 5% rise.

The reason for such strong share price performance has been upbeat news flow surrounding the company’s production levels, which recently surpassed 1,000 barrels per day and could go even higher over the short to medium term.

Positive News Flow

Indeed, today’s news flow appears to provide confirmation that the short term looks very positive for Leni. The company reported that production at its Goudron field in Trinidad has now reached full capacity and is being held back until it receives delivery of a larger sales tank, which is expected to take place over the next couple of weeks.

Furthermore, Leni also said that rates of production from GY-667 in the Lower Cruse reservoir section have exceeded its initial expectations. The company initially estimated around 60 barrels of oil per day (bopd) but the first completion in the section tested at a rate of 540 bopd. Commenting on the update, chief executive Neil Ritson said: “we are excited that a relatively thin interval is producing so prolifically”.

Looking Ahead

Indeed, ‘excited’ is probably the right word to use when it comes to Leni. After all, it’s rare for any stock to deliver such strong share price gains in such a short time period without a considerable level of excitement being present among investors.

Clearly, there is a danger that excitement and optimism cause the company’s share price to more than adequately price in future potential. As a result of this, it could be argued that shares are due for a pullback after such strong growth during the course of 2014. After all, news flow is not going to be continually positive and disruptions and disappointment are a fact of life for all companies – especially oil and gas exploration stocks.

Therefore, while the excitement surrounding Leni could mean that shares react very negatively to disappointing news flow, it could also help to push them much higher. In other words, just because they have performed exceptionally well in 2014 does not mean that it won’t continue. After all, Leni remains unprofitable and so traditional valuation metrics would have decided its stock was overvalued long before the 747% gain.

So, for investors who are risk-seeking, Leni could prove to be an exciting and, more importantly, highly profitable play. However, the future may not be quite as smooth as the past, and such investors should not be surprised if there are a number of lumps and bumps, alongside further excitement, over the coming months and years.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.