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Leni Gas & Oil soars after initial success at Hontomin-2 in Spain

Leni Gas & Oil (LON:LGO) told investors that oil flowed to the surface during drilling of the Hontomin-2 well in Northern Spain. The well encountered oil at a depth of 1,350m.

Shares in the group rose nearly 30 percent in opening deals.

"This is an extremely important development for the company ... oil flowing to surface is an encouraging sign for this well," chairman David Lenigas commented.

The company has now drilled the top reservoir formation, which will be fully monitored over the next few days, before drilling resumes to open the bottom reservoir formation.

All production from Hontomin-2 will be transported to the company’s central production facilities at the Ayoluengo operations. 

The Hontomin structure has an estimated 2.40mmbo (million barrels of oil) in mean probable OIIP (Oil Initially In Place) resources. The Hontonmin-2 well, and the associated testing program, are designed to appraise long-term production potential.

Last month, analysts at Edison Investment Research highlighted that the Hontomin-2 extended well test marks the start of an extensive development plan to evaluate the untapped oil and gas resources at Ayoluengo and in the surrounding concessions.

The analyst beleives that LGO has the potential to transform itself into a mid-tier E&P player. Edison said it considers LGO to be a ‘development and rehabilitation’ specialist and that it has a ‘large resource base’ given its junior status.

According to Edison, LGO has 'significant prospects', with its ‘best estimate’ of prospective recoverable resources at 120 million barrels of oil equivalent (mmboe) - with 56 million barrels of oil (mmbbls) and 383 billion cubic feet (bcf) for gas.

The Spanish operations are considered to be LGO’s core assets. In Spain work centres on the renovation of the historic Ayoluengo oilfield, which comprise of  12 oil and gas production and exploration prospects - at all lifecycle stages.

"Spain is one of the company's most important assets and there is a great deal of new work being done between here and the end of the year,” Lenigas added.

The chairman emphasised that LGO intends to enhance its overall production on various fields, as a result of its extensive reworking of its project database.

The Ayoluengo oilfield has a mean oil initially in place volume of 106 million barrels, and 19% of that has been recovered since 1964.

LGO believe they can achieve 30% to 40% recovery using re-completions, new primary depletion, and gas and liquid assisted mobilisation and re-pressurisation programs.

The recent re-processing of Chevron’s historic 3D seismic work revealed two ‘very significant opportunities’ below the known shallow reservoirs and targets.

The uppermost target, around 2,000-2,300m below surface, is believed to be an oil reservoir with a nominal gross reservoir sequence of 80m, a footprint of 10 square kilometres, and good porosity in the range 10-17%.

Additionally it is believed that an ‘unconventional’ shale gas reservoir exists below this, with a potential for 3.8 trillion cubic feet of gas initially in place.

Disclosure: The author holds no position in the company