My sentiment towards Linc atm is negative. The issue is not assets, rather it is management. Linc is in a corner atm and the reason is poor management decisions. To take your points in order:-
1. I am no expert about oil. But this is how I see things.
The Texas assets are profitable and likely to become more so.
However, Alaska has just about sunk the whole exercise. $50 mill down with no positive result and probably another 50 to spend yet. Linc needed to get results to allow for an asset re-rate of Umiat. With a higher valuation, Linc could then have raised enough money, using that as collateral, to comfortably continue exploration. Now, that money has to come out of Linc's own pockets.
The Umiat project is too capital intensive for Linc's finances. Unfortunately, my guess is Linc is stuck. The bond raising [for 265 mill] was against the oil assets, which I believe includes Umiat. So selling Umiat probably triggers clauses in the bond agreement.
Late in the discovery of information [posted on HC] was a study by the University of Alaska Fairbanks. Reading through that, it has RISK written all over it. [When I read the report, it became very clear to me why the previous owner had sold Umiat] The fact that Linc proceeded shows me that management are prepared to gamble with the Co's future. Hunting for a bonanza on borrowed money is reckless.
If things go well next drilling season, then OK the gamble has succeeded. If not, the oil asset overall is massively value impaired and Linc will be scrambling to earn enough income to pay out the bonds, when they come due.
The future of that income relies on successful sub-salt drilling. The traditional wells that Linc are drilling will not be enough. The EOR plans for Wyoming might possibly provide the necessary funds, but it needs to happen this year IMO.
So my assessment of the oil asset is, without Umiat, it is money earner ... but Umiat looks like a disaster and a major cash drain which, if it does not come good, will destroy most of the value.
2. The Adani royalty. There was some discussion about this a couple of weeks ago. I put the lowest value on it of anyone else it seems. My valuation is ~40 cents per share [~200 mill]. Put yourself in a buyers shoes. Deposit $200 mill [for 20 years] in a bank account @ 10% compounding interest [you need to assume 10% interest to account for the fact that it is not risk free], and you will receive the equivalent return as you might get from the Adani royalty [after you factor in tax]. Valuations of 400 to 600 mill seem unrealistic to me.
Teresa ... I think it will definitely be sold this year, because Linc needs the money. It is anybody's guess how much the Co can realise ... it is currently a buyers market.
3. UCG is where the Co's strength is and one can only hope that the Co starts to commercialize it. However, income from it will not be significant this year. I think you have to allow 12 to 24 months from start-up of any project before you can be counting the money.
4. Sapex [Arckaringa]....this has to be the best short term prospect for the Co. A JV deal will light a fire under the SP and restore the Co's credit worthiness. But, once again, I would not be holding out big hopes for a huge cash injection into the coffers. The experience of CTP [Central Petroleum] should alert one to just how hard it is to get a good deal. [CTP's assets are different but also very prospective]
Arckaringa looks the 'real deal' but it is in the middle of nowhere. If it was in the US or some other high population area it is the complete no-brainer. But, in the outback, devoid of infrastructure, question marks about water availability, no defined end market for the production and it having the status of a resource [as opposed to a reserve], it is better to remain conservative on how much money might be offered by a JV to buy into the project... especially given that it is clear that Linc, on its own, can not afford to explore and develop it.
The assets of Linc have always stood out as excellent. I am dark on the Co because management have placed the financials in jeopardy ... by gambling on getting good outcomes in high risk ventures [Umiat and next up, to a lesser extent, drilling for oil in sub-salt] rather than steadily building a business in an organic manner.
The $200 mill the Co raised recently could all be spent by this time next year ... on Umiat, sub-salt and EOR, with no clear certainty of return. The Co desperately needs to establish a strong revenue stream. If it fails to do so then selling some of its assets will be forced upon it.
Presently, I am so unhappy about management that it is going to take a big turnaround in the way they do things for me to consider buying back into Linc.
P.S. Hi MrMc
LNC Price at posting:
$1.53 Sentiment: None Disclosure: Not Held
