Market sentiment has driven the share price down, not fundamentals.
The fundamentals have improved, not worsened, since the SP hit $1.20 just before drilling into Leadville as we now know two things:
1. There is flowing gas in at least one formation after only a mini-frac, which will improve even further after the full fracturing. This has been good enough that the company has decided to get a workover rig to prepare this for the "excellent potential for production" - you cannot get any closer to saying this is commercial without breaking ASX rules until production testing has been performed.
2. There are other potential producing formations yet to be tested, including an oil show.
3. Some gas was present in Leadville - and the top of leadville at the depth they hit is was a transition zone. For those that don't know, the transition zone is the interval between the gas above and the water below. The composition varies within this zone from pure water below the zone to pure gas (+/- oil) above the transition zone. Typical thickness in Mississippian sandstone in Utah is about 40 foot and never more than about eighty to a hundred foot (see a previous post of mine for a graph of this). Gas will not be detected at all more than about a hundred foot below the top of the transition zone in sandstone. What this means is that if they had hit Leadville 40-80 foot higher they would have been in near pure gas. The gas they did get from Leadville on the show was ethane/methane predominant (ie. sweet gas - capable of being produced).
Why this is so good is that they are a long way down dip in leadville where they drilled, and in fact Leadville was much deeper AND THICKER than they initially thought. This means there is almost certainly not only an awful lot of depth of leadville that is full of gas above this drill-hole (more than would have been initially thought) but that it is also thicker - so the reservoir potential is massive.
This information seem to have gone completely unnoticed by almost all of those on this forum - though has been alluded to in the report post leadville testing. Check the meaning of "gas-water transition zone" yourself to get a better understanding.
The only thing that they need is to stay solvent until the massive potential has been realised and this low SP is not helping. This is the major risk here IMO.
This is why the third or fourth well will be the critical ones here when they will target Leadville up-dip - as given their cash position they will likely drill two more development wells into Barker creek and above to get cashflow.
GDN Price at posting:
0.0¢ Sentiment: Hold Disclosure: Held
