LEI is an interesting buy, but it makes sense to look at another company, Petro River Oil, with a similar cash structure (4 million shares outstanding), but far better liquidity ($23.5m) and assets that even the majors like Chevron and Hess would own. The D drops next week and they’ve applied for uplifting. If a company like Lucas Energy can run $31m in debt and jump from 15k in trade volume to 140m in the course of a week then PTRC is due for a huge gain as well. Let’s take a look at the technical aspects to the two companies as they are a direct comp.
Lucas Oil announced the acquisition of over 40,000 acres of land in the prospective Hunton formation. The Hunton has significant amounts of water that is produced with the oil and it has one of the lowest development costs of any unconventional liquids-rich reserve in the United States with wells running around $3.5MM. The key to making the Hunton work with horizontal wells is to find areas that produce higher oil water ratios and that have existing water-handling infrastructure. The Mississippi Lime east of the Nemaha Ridge is a close cousin lying just above the Hunton. Like the Hunton, the reserves in the Mississippi Lime are a result of a breached giant anticline that has subsequently been flushed with water. The remaining oil is present in structural and stratigraphic traps. Like the Hunton, the Mississippi Lime produces large amounts of water and requires substantial water handling infrastructure. In Northern Oklahoma, the Mississippi Lime is much shallower than the Hunton, and development costs are even less. Moreover, like the Hunton area, the Mississippi Lime area has the potential for vertical development with stacked pay–e.g. multiple formations that can be produced together in a conventional vertical well.
If Lucas Oil’s asset is good, PetroRiver’s 100,000 acres of land in Osage County has the potential to be better. There is substantial existing water handling infrastructure, development costs are dirt cheap, and the decades of experience that PetroRiver has in the area allow it to better target these structural and stratigraphic traps that contain higher percentages of oil. Moreover Petro has existing 3D seismic data which has identified numerous locations for conventional wells which can be completed in multiple zones for very low cost.