Lgo Energy(LSE: LGO) is surging this morning, up 33% at the time of writing after the company revealed that the flow rate of itsGoudron GY-670 well, has exceeded 1,000 barrels of oil per day.
The GY-670 well is the latest well to be completed at LGOsGoudron Field in Trinidad. The well is flowing at astabilised, but highly restricted rate of 1,085bopd.Over the last 48 hours, the well has flowed at an average rate of 1,104 bopd. Whats more, according to LGOs press release on the matter, GY-670s open-hole flow rateexceeds 6,000 bopd.
Neil Ritson, LGOs Chief Executive, commented:
The first of the three wells on Pad-3, and the sixth completion in the eight wells we have drilled in 2014 has provided our best initial oil rate to date. Higher reservoir pressures in this area of the field combined with further improvements in drilling and completion techniques have given us the highest flow rate ever seen in the Goudron Field. Two further wells, GY-671 and GY-699, have yet to be placed on production on Pad-3.
More to come
Theres no doubt that todays news from LGO is game changing, and comes only a few days after LGOs management announced that overall production had exceeded 1,250 bopd for the first time. A flow rate in excess of 1,000 bopd from the GY-670 wells will help the company nearly double production.
But thats not all, further production increases are likely to occur over the next few weeks and months. Indeed, as mentioned above, two additional well in the Goudron Field,GY-671 and GY-699, have yet to be placed on production. These two wells could add yet another boost to LGOs output.
With production surging, I believe 2015 really will be a great year for LGO, and the company could now offer one of the best growth opportunities around.
However, as of yet there are no City analysts that cover LGO, so its difficult to try and place a valuation on the companys shares. Still, with the company now producing in excess of 2,000 bopd, at current prices, its reasonable to assume that LGO will generate revenue of at least 29million next year. Thats a four-fold increase on the companys reported revenue for 2013.
All in all, it looks as if LGO is well placed to report its maiden profit next year, and the companys production could rise further as additional wells come online.
Nevertheless, having said all of the above, like the rest of the oil and gas industry, at present LGOs future is threatened by low oil prices. However, with production surging, increased output should offset much of the decline in oil prices. The 2015 revenue figure above is based on the current oil price of $62/bbl. If the price of oil reverted back to $100/bbl, LGOs annual revenue could hit nearly 50m next year.
So 2015 could be LGO’s year but risks remain and for the time being, while LGO’s production is rising, risks remain.
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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