LGO Energy#: Turning the Corner

Following the restructuring of its balance sheet in December 2016 and the 20 for 1 share consolidation in early March, LGO Energy (LGO)# now appears to have turned the corner and preserved its reputation as an operator in Trinidad. It is now refocusing its efforts on the Goudron Field development plan and looking to capitalise on its acreage position in the South West Peninsula.

Goudron Field Development Underway

Following the completion of its refinancing with Lind Partners in December 2016, LGO was able to repay its senior loan facility with BNP Paribas allowing it to access previously restricted funds in Trinidadian dollars and begin the drilling of infill production wells in the Mayaro Sandstone formation of the Goudron Field, which is estimated to contain 2P reserves of 11.8mmbbls. Despite the challenges it faced LGO maintained production from the Goudron field through 2016, averaging 425bbls/d.

LGO has now mobilised a rig to begin drilling the first two wells of a planned 10 well shallow programme as it begins to ramp up production, with the cash flow from each well contributing to the remainder of the programme.

LGO also plans a full field enhanced oil recovery waterflood development at Goudron targeting over 60mmbbls of independently verified 3C resources. A low cost waterflood pilot programme, using wells already drilled, should be underway later this year.

South West Peninsula Offers Additional Value

Further to its development programme at Goudron, LGO has significant potential to add material upside from exploration in its South West Peninsula leases. Given Trinidad’s history as a prolific petroleum province we view this as a particularly exciting area with reduced geological risk.

Recommendation and Target Price

We initiate coverage on LGO with a BUY recommendation and 22p target price, in line with our risked NAV using 12% WACC and a US$50/bbl flat long-term oil price.