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Private value investor living near Jackson Hole, WY
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  • In The "Better To Be Lucky" Category: December 11 Lyden Energy Sale Validates My Earlier Posting

    On December 11, I posted an article here that suggested that Lynden Energy (TSXV: LVL, LVLEF.PK) assets each might be worth quite a bit more in aggregate than the Company's current market cap reflects.

    As the expression about the blind squirrel finding the nut goes, it turns out my timing for that article was fortuitous: The very next day, after market close, Lynden Energy announced the sale of certain sections of land to BreitBurn, giving us a handy starting point for valuing the (substantial) remainder of Lynden's holdings.

    In my first article, I noted that Lynden is followed quite closely by the author of a blog called "Wolfberry Blogspot". In fact, I excerpted many of that author's postings to build my case for the inherent "sum of the parts being greater than the whole" valuation for Lynden.

    Once the announcement of the sale hit the market, the Wolfberry Blogspot author posted an update using the disclosed numbers as his basis for estimating Lyden's potential valuation. With his permission, I'll paste that article in its entirety, below, as it does the best job of summarizing the upside potential for Lynden Energy:

    Yesterday's announcement by Lynden Energy Corp. of a sale of certain assets to BreitBurn Energy Partners provides a basis for valuation of Lynden's remaining lands. (LINK TO PRESS RELEASE)
    We believe the sale was likely located within the West Martin project area. The $25 million sale price for 630 net acres equates to a land valuation in West Martin at $40k/acre. Using this transaction as a benchmark, it is possible to project values for Lynden's remaining lands, and in turn, a reasonable market cap/fully diluted share price for LVL.

    First, our assessment is that Lynden's Wind Farms project is every bit as valuable (if not more) as the land included in yesterday's announcement. The BreitBurn sale thus provides a justifiable comparable for the Wind Farms land at $40k/acre.
    Lynden's Tubb project is located in an area that in general is not as developed/proven as the West Martin and Wind Farms. That said, the Tubb project area is in the heart of the developing Fusselman play. The Fusselman Shale is located below the Mississippian Shale and is being explored by Cobra, Target, Trilogy and others. Cobra's Fusselman well is located adjacent to Lynden's Tubb project and is rumored to be very successful. Apache is developing the Fusselman and the Cline just south of Tubb and immediately east of Wind Farms. We believe that a reasonable valuation for Lynden's Tubb land is $20k/acre based on its Wolfberry exposure. Further, the value of these lands could increase to as much as $40k/acre with successful Fusselman and Cline drilling by other companies.

    The drilling by Devon adjacent to the northern border of Mitchell Ranch and the Firewheel well (rumored to be of substantial size) to the south leads one to believe that a valuation of Lynden's Mitchell Ranch lands at $2k/acre is very low. A valuation of $7.5k to $10/acre is entirely reasonable, given the current desirability of Cline Shale land.
    From an operational viewpoint, the BreitBurn deal provides Lynden with plenty of working capital in exchange for a relatively small portion of its total assets (less than ten percent of its Wolfberry land). The $25 million proceeds (net to Lynden) provide a solid cash cushion for the Company, greatly minimizing any worries about future financings or Lynden's ability to continue as a viable company for the foreseeable future.

    What does this mean? Lynden's remaining Wolfberry acreage in aggregate can be valued at $200 to $250 million: this asset alone would equate to twice the Company's current market cap. Adding in the potential of Mitchell Ranch, the sum of Lynden's assets could easily reach $500 to $600 million, translating to a fully-diluted price of up to $4/share.
    Is this possible? With the frenzy to acquire land in the Wolfberry and Cline and the validation of present Lynden holdings based on the BreitBurn sale, we believe so. In January 2011, The Oil and Gas Investments Bulletin called Lynden Energy a "No Brainer." That comment now looks accurate and we believe that Lynden Energy Corp. is indeed a "No Brainer."

    Posted by GFat 9:21 AM

    Disclosure: I am long OTCPK:LVLEF.

    Dec 14 10:09 AM | Link | Comment!
  • Lynden Energy: Is The Sum Of The Parts Greater Than The Whole?

    Lynden Energy: A Stateside Oil/Gas Play

    The purpose of this posting is to provide an overview of observations by others on a speculative opportunity in a junior resource oil/gas company, Lynden Energy (TSXV: LVL; LVLEF.PK). Disclaimer: I am long LVL.

    From the Company website www.lyndenenergy.com Lynden Energy Corp. (TSXV: LVL) is an oil and natural gas company engaged in the acquisition, development, and exploration of oil and natural gas properties. Operations are focused on our Wolfberry and Mitchell Ranch projects in the Permian Basin, West Texas, and our Paradox Basin Project, Utah.

    Here is the chart of the trade in common shares of LVL for 2012 (Source: Schwab):

    LVLEF:TSXV

    As of Tuesday, 12/11/2012

    +0.50 (113.79%)

    (click to enlarge)

    The source for all of the information that follows is the "Wolfberry Post" http://www.wolfberrypost.blogspot.com/, by another author, who is also long LVL. I have excerpted from this post certain information that the reader may find pertinent in considering this opportunity further. Exploring this blog and Company website in detail would be an appropriate next step in considering the investment opportunity.

    Some analysts posit that the Company is in an ideal position to consider monetizing some of their assets. From Wolfberry Post:

    Keith Schaefer from the Oil and Gas Investments Bulletin oilandgas-investments.com posted an update on Lynden Energy today. He states that Lynden is open to both a corporate deal and selling off assets. We believe that monetizing the Wolfberry assets would be worth potentially $200 million (LVL's current market is cap is about $100 million) and Schaefer states that that would be a realistic transaction price.

    There is a lot of permitting activity surrounding the Mitchell Ranch area due to the abundant interest in the Cline Shale. We believe that Schaefer's estimate of value for Lynden's Mitchell Ranch of $2,000 to $3,000/acre is low. A valuation of $7,500 to $10,000/acre is entirely possible in the near future which could add $250 to $350 million of value.

    (click to enlarge)

    The Oil and Gas Investments Bulletin stated that "Devon Energy is now licensing a well very near the northern border of Mitchell Ranch." They have in fact permitted THREE wells about one mile north of Lynden Energy's portion of Mitchell Ranch and two more in close proximity. Does Devon have the Mitchell Ranch in their sights or is it a mere coincidence that the wells are that close? Either way, the wells are a good sign and the results will go a long way toward showing the production capability of the area without further expenditures by Lynden.

    As additional validation of interest in the Cline Shale resources, the Wolfberry Post author cites the recent interest by JVL Advisors (a private investment firm located in Houston, TX, no website available) in acquiring a significant stake in LVL:

    JVL Advisors purchased another 1,044,000 shares on 11/26 and 11/27. John Lovoi [principal] has extensive experience in research covering the oil industry as head of Morgan Stanley's Global Oil and Gas investment banking practice. This brings their total holdings to 15,051,100 shares! JVL purchased 7,143,000 shares through a private placement and have now purchased an additional 7,908,100 shares in the market. The purchases in the market have been above the price of the warrants which is certainly an encouraging sign.

    In late November, the Wolfberry Post provided range estimates for valuing LVL's assets as follows:

    Here is an updated acreage/valuation analysis that shows the huge potential for Lynden!

    Acreage Low Mid High

    West Martin/WF 4,108 $20k/acre $27.5k/acre $35k/acre

    Tubb 2,401 $30k/acre $35k/acre $40k/acre

    Mitchell Ranch 34,150 $5k/acre $7.5k/acre $10k/acre

    Total $325 M $453 M $581 M

    By these calculations, Lynden is worth several times its current market cap and could be worth $2 to $4/share.

    Disclosure: I am long OTCPK:LVLEF.

    Tags: LVLEF
    Dec 11 4:44 PM | Link | Comment!
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