valuing a tight gas discovery...

I put this on the boards in UK for LRL, so copied over here. Just my thoughts and opinions, nothing else.

If you look at upsides then taking the previously stated Camac figure of potential 300 BCF recoverable in the whole license area and that this is highly likely going to be compartmentalised due to the tight nature then :

Each well might target around 50 BCF recoverable pockets of gas (my opinion) - could be less or more, less is more likely I think but lets go with 50 BCF for each pocket.

50 BCF valued at 2 US$ in the ground with a 60% work in for LRL (lets ignore 30% tax on profits/royalty etc..)

50 BCF x 2 US$ in the ground = 100m US$.

60% work in = 60m US$

Convert at 1.61 = 37.2m GBP


So the value of ZJS-05 based on it finding a 50 BCF recoverable pocket of gas with commercial flow rates is around 14.9p a share.

I think its fair to suggest that they hit one sixth of the estimated recoverable gas in the license area (300 BCF total recoverable and that is a fair figure from the previous license owner considering tight gas plays like this have very low recovery factors, multi TCF gas in place ends up as hundreds of BCF recoverable) The work plan for LRL is drill, log, case, frac and flow test for each of its 3 wells, and so you cannot expect a single well to extract a lot of gas, it will have a very limited drainage area. (Yes they are planning cased hole fraccing according to their plan as in the media for each well)

Add on 12p cash per share and you get 27p a share so there is some upside to the share price from the present 19p.

As much as finding one pocket will derisk other leads, this is tight gas territory and so (as Camac found out who drilled 4 wells, had 3 with gas and those 3 all uncommercial and then they sold this license to LRL for the equivalent of circa 2.7m GBP (cash and shares)) its not easy to hit net pay.

Of course, I may be using over optimistic figures on a pocket of 50 BCF, it might only be 25 BCF or 10BCF, which brings the share price projection downwards, but even at 25 BCF there is atiny amount of upside to the current share price (25 BCF would give 7.5p +12p cash = 19.5p a share)

But everything hangs on can they get commercial flow - and if yes - then how big is this in RECOVERABLE gas terms ? Is it 5 BCF, or 10 BCF or 25 BCF or even 50 BCF ?

Do not get fooled by the hyping of some posters with TCF figures of "GIP" thats "Gas in Place". This is tight gas territory and the recovery factor is normally very low (recovery being how much gas you can get out of the ground from your GIP figure).

The downside is protected somewhat by cash, so if they get poor results from this ongoing well under testing now (results due year end) the downside is perhaps a 45% fall from the present price and then recovery back to around 12p a share level).

Below slide is from Camac (the previous license owner when they were all excited by the license, prior to selling it to LRL after their many failed wells).

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