Lgo Energy PLC Issues Yet Another Upbeat Drilling Update

LGO Energy (LSE: LGO) has issued yet another positive drilling update today from the company’s Goudron Field in Trinidad.

LGO is currently in the process of developing 30 new wells across the field, and today the company revealed that the seventh well in this development plan, GY-670, had found oil within the Goudron Sandstone formation. What’s more, management announced today that a neighbouring well, GY-669, has also found oil.

However, after studying the data from GY-669, LGO’s engineers have decided that the previously planned Goudron Sandstone well, anticipated to be the fourth from Pad 3, is not ideally situated and the drilling of that well may be deferred until 2015. Three wells from Pad 3, all targeting the Gros Morne, will be drilled and completed by end 2015.

Still, this is only a minor setback for LGO and should prove to be a solid long-term decision as the company maximises the value it can draw from each well.

Commenting on today’s update, LGO’s Chief Executive Neil Ritson stated: 

“The development drilling has continued to produce results in line with or ahead of expectations and GY-670 is progressing to plan and will be deepened to intersect with all likely oil bearing reservoirs. Once GY-670 reaches TD the third and final Gros Morne well on Pad 3, GY-671, will be drilled and then it is expected to complete all three wells as producers by end year. This will lead to a further significant increase in production as we go into 2015.”

Continues to impress

Today’s update is yet another positive development in what is shaping up to be a great year for LGO. Indeed, LGO entered 2014 trading at only 0.75p per share, with a market capitalisation of around £20m. Now, the company’s value has skyrocketed to over £115m and there’s more to come.

For example, LGO is expecting record production next year as a number of the company’s new wells come on stream. For the first time, LGO’s oil production will average over 1,000 barrels of oil equivalent per day next year, a huge milestone for the company.

With oil currently trading at around $80 per barrel, a year of oil production at 1,000 barrels per day will generate revenue of $29m for LGO during 2015. Of course, this estimate excludes any contribution from additional wells that are set to come on-stream by the end of the year. 

Cloudy outlook

Unfortunately, it’s hard to place a value on LGO at present. No City analysts have put together any earnings estimates for the company, which makes it difficult to decide if the company is a buy at present levels.

That being said, with production surging over 1,000 barrels of oil per day, LGO is likely to report a solid profit next year, which should give more clarity on the company’s potential value.

Still, for the time being, LGO's future is uncertain and the one thing to remember is that oil minnows can make you rich but they can also make you poor.

That's why the best investors build a portfolio with a combination of both risky oil companies and reliable dividend-paying stocks, reducing risk and allowing you to sleep soundly at night.

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Rupert Hargreaves 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.