LGO Energy PLC Releases Upbeat Operational Update

LGO Energy (LSE: LGO) has today provided investors with an update regarding its Goudron field in Trinidad. The release is positive, with LGO stating that well GY-670 has been successfully drilled to a total depth of 4,300 feet measured depth and has been electrically logged and cased as a future production well from the C-sand interval.

In addition, a further interval of 242 feet of net oil bearing C-sands have been computed as well as the 206 feet of net oil pay identified on electric logs that was previously announced on 11 November.

According to LGO, the sands encountered below the Goudron interval that were previously reported are of good quality and have significant net oil pay. Furthermore, the company expects the well to be completed as a C-sand producer as early as December, with the next well in LGO’s programme of new development wells at the Goudron field, GY-671, due to be drilled imminently. Following this, LGO expects all three wells to be completed as C-sand producers moving forward.

Share Price Reaction

Despite the update being positive and showing that LGO continues to make encouraging progress with regard to its operations in Trinidad, the market seems to have already priced in upbeat news flow from the field. That’s because shares in LGO have both peaked and troughed by 2% already far today, although they are still up a whopping 471% since the turn of the year.

Indeed, looking ahead, this could prove to be a potential challenge for investors in the stock. With LGO’s share price having risen so strongly after a string of good news, it appears as though the market has become somewhat expectant of more good news, so that when the company releases an announcement such as today’s positive news concerning well GY-370, it does not have a major impact upon the company’s share price.

In other words, future success could already be priced in to LGO’s share price.

Looking Ahead

As a result of this, any disappointing news flow could have a considerably negative impact upon the company’s share price. And, with the nature of LGO’s operations being inherently uncertain, difficult to accurately forecast and likely to contain a mixture of success and failure moving forward, it could be the case that upside is somewhat limited in the near term, but there remains considerable downside.

As such, investors may wish to hold off buying shares in LGO at the present time. Certainly, the company is continuing to make excellent progress, as today’s update shows. However, good news seems to be priced in and, should operational updates disappoint moving forward, then LGO’s share price could come under pressure.

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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.