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Lekoil – a speculative buy at 38.5p

By Doc Holiday | Thursday 25 July 2013

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Shares in AIM listed oil junior Lekoil (LEK) are currently trading just off year lows of 35p. You may say that this is not unusual in the current climate but hang on, let’s review what is actually going on here for the company which is now capitalised at £84 million.


The company has just raised funds at 39p - £13.2 million. That announcement last week comes not long after the company raised£32 million on its 17th at 2013 AIM admission at 40p.

The net proceeds of the latest placing will be used to fund the drilling and testing of the sidetrack well: Ogo-1 ST, on the OPL310 licence offshore Nigeria, as referenced in the announcement dated 26 June 2013, as well as for general working capital purposes.

The Placing will be conducted in two stages, with the First Placing Shares being placed using the Directors' existing authority to allot shares for cash on a non pre-emptive basis, as granted at Lekoil's most recent EGM, and the Second Placing Shares being placed conditionally upon, inter alia, the passing of the Resolutions at the Extraordinary General Meeting to be held on 7 August 2013.

Since the IPO Lekoil has already delivered some pretty cracking drilling news from Ogo-1 where it has drilled to a total measured depth of 10,518ft (10,402ft true vertical depth subsea ("TVDSS")), and has encountered a gross hydrocarbon section of 524ft, with 216ft of apparent stacked, net pay.  Lekoil has a 30% economic interest.

Afren, the operator, said that the well was targeting 78 million barrels of oil equivalents (mmboe) of gross P50 (50% chance of recovery) prospective resources, "but based on evidence to date, targeted resources are likely to be significantly in excess of previous estimates".

Lekoil also has a c6.5% interest in another block which is set to commence production in 2015 and where its unrisked reserve is c25 million barrels of oil equivalent.

It strikes me that the asset base, the exploration upside and the strong balance sheet are not discounted in the current share price. It has to be worth a flutter.

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