Linc Energy (ASX:LNC), an Australian energy company headquartered in Brisbane, has recently announced its discovery of up to 233 billion barrels of oil in the Arckaringa Basin. The Australian government is hoping this development can allow the country to transform into an oil exporter and retain its energy self-sufficiency.
Linc Energy (
stock price over the past year:
At first glance, this piece of news may make investors extremely bullish on Linc Energy; with the price of oil hovering around 96 dollars a barrel, this could translate to huge growth for the company. Before coming to such conclusions, however, we must explore some important issues associated with the recent discovery.
The Arckaringa Basin’s reserves consist of shale oil, as opposed to conventional crude. Shale oil comes from sedimentary rock and the conversion process into liquid form proves extremely costly and difficult. CEO Peter Bond predicts that in the worst case scenario, only 3.5 billion can be extracted, which would still render 336 billion dollars for a company with around 3 billion in yearly revenues.
Bond has also stated that it could cost up to $300mm to start the extraction process, which would not hit its stride for several years. Analysts have refrained from jumping on the Linc bandwagon, stating their desire to first find out more about the quality of the oil reserves, the project timetable and other factors such as infrastructure and piping.
Investors should also consider the prospect of Linc Energy possibly sharing the rights of the reserves with a larger oil company to help out with the extraction process. With all these factors taken into consideration, and even in the worst case scenario, it seems Linc Energy may have a bright future ahead of it. Linc’s recent discovery and improved performance in 2012 should place the firm on investors’ watch list. In 2012, Linc managed to up its production to around 6,000 barrels per day, which helped the company’s stock price rally past $1.20 by the new year (a doubling of share price from August). It could also be wise to keep an eye out for Australia ETFs and piping companies that will soon join the party.
Linc Energy (LNCGY) stock price over the past six months:
Written by Kapitall's Sherif Hamid