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Leni Gas & Oil expects to spud Hontomin well later this month

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Leni Gas & Oil (LON:LGO) expects to spud a well on the Hontomin oil discovery in northern Spain later this month. The rig is scheduled to arrive on or around the 16 August. The well is intended to appraise the long term production potential of the Hontomin-2 well.

"The company is excited about the potential of Hontomin to bring on-stream a second production asset in Spain", LGO Chairman David Lenigas said.

The company expects to drill-out and re-complete the well in 4 weeks, before monitoring production over the next few months. The company anticipates that it will perforate existing hydrocarbon intervals and other potential undepleted zones by the start of Q4.

The subsequent well data will also be used to further appraise the larger Lower Jurassic conventional oil prospect below the Ayoluengo producing oilfield – located approximately 38km away. Additionally, all well test production from Hontomin will be to the Ayoluengo production facilities for processing and oil sales.

The well targets the Hontomin prospect, which is believed to be at a depth between 1,350-1500m. The prospect is a proven Lower Jurassic Lias Calcarenite hydrocarbon formation - discovered by Chevron in the 1960s and initially tested at an initial rate of 700bopd (barrels of oil per day).

In the statement, LGO highlights that the Hontomin structure, which covers up to 2.9km2, has a mean probable OIIP (Oil Initially In Place) of 2.40mmbo (million barrels of oil) - with a P10 estimate of 5.71mmbo, 1.34mmbo P50 and 0.29mmbo P90.

"The historical performance of the well and the ongoing joint development work with CIUDEN presents a tremendous platform to maximise the commerciality of the Hontomin structure and potentially provide boost to Spain's daily production and revenues", David Lenigas added.

In June, the first seismic program under a joint development deal with Fundación Ciudad de la Energia (CIUDEN), began on the Hontomin oilfield. The seismic program is fully funded by CIUDEN, with both ultra-sensitive and 3D seismic surveys being carried over an area of approximately 10km2 centred on the Hontomin reservoir. 

The program is expected to be completed this month.

The joint development agreement was initially signed in March 2009, allowing CIUDEN to carry out research, testing and implementation of carbon dioxide (CO2) sequestration pilot sites on LGO's Spanish acreage. The agreement also provides for the full bi-lateral sharing of results and data from all programs executed by the LGO and CIUDEN.

LGO targets growth through the acquisition and enhancement of proven reserves and producing assets in low risk countries. The company has a broad range of projects in its portfolio, with assets in the US Gulf of Mexico, Spain, Trinidad, Hungary and Malta. 

Yesterday, a note by Edison Investment Research said there was plenty of upside to LGO’s value, as the current market price implied a price of just US$0.5/boe (barrel of oil equivalent). Furthermore, Edison highlighted that US$2/boe would be more appropriate, given the company’s 10% exposure to highly prospective exploration acreage in Malta and the high reliability of its projects.

According to the equity research specialist, LGO has a “substantial” resource base for a junior and notably Edison estimates that the Spanish assets, along with its interests in the Gulf of Mexico (GoM) and Trinidad, can attribute recoverable resources of 40mmboe (million barrels of oil equivalent). And if the deep-plays on the three projects and the Malta assets are included LGO may have over 575mmboe in unrisked resources.

Previously, in July, Edison also said that LGO has the potential to transform itself into a mid-tier exploration and production (E&P) company over the next two or three years.

Quick facts: Columbus Energy Resources PLC

Price: 1.85 GBX

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Market Cap: £17.3 m
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