Reality check for Linc '$20 trillion' find
INVESTORS continue to push up Linc Energy stock despite widespread scepticism about reports it has found $20 trillion worth of oil in South Australia's Arckaringa Basin.
Linc shares surged again yesterday, rising 24 per cent to $2.67, meaning the stock has risen more than fourfold since late November when it was under 60¢.
Earlier this week Linc released estimates by two independent consultants of an "unrisked prospective resource" of up to 223 billion barrels of oil equivalent in three shale formations within its 100 per cent-held Arckaringa acreage.
Media outlets, including News Ltd's Adelaide Advertiser, appear to have multiplied the resource estimate by the prevailing oil price to arrive at the exorbitant sum.
But Linc chief executive Peter Bond told BusinessDay: "That's not our valuation. I don't know who did that but someone's got a calculator out and come up with that number . . . but we wouldn't put a valuation on it at this stage.
"Obviously if you want to stand up there and come up with $100 times 100 billion barrels, you'll come up with a big number. That's not how you value oil resources anyway."
Petroleum resources are classified into booked reserves - proven, probable and possible - or resources which may be contingent or prospective.
The estimates released by Linc on Wednesday were classified by the consultants as unrisked prospective resources because of their "lack of commerciality or sufficient drilling".
As the consultants wrote: "There is no certainty that any portion of the prospective resources estimated herein will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources."
Mr Bond explained that industry rules of thumb guided valuation of reserves, with good quality 2P (proven or probable) or 3P (proven, probable or possible) reserves valued at between $US1-2 a barrel.
"Once you get to 1P (proven reserves) you get to $US10/barrel, or $US100,000 per flowing barrel."
Shale plays tended to be valued on an acreage rate, ranging from $US1000 to $US2000 an acre at the low end, to $20,000 an acre at the high-end. But Mr Bond did not walk away from the potential of the shale play at Arckaringa, where Linc has 16 million acres of which 2-3 million acres could be "sweet spot" territory. "No matter how you look at it, it's big," he said.
Mr Bond said Linc's consultants estimated there was a minimum of 3.5 billion barrels of oil equivalent at Arckaringa.
"It's a multibillion-barrel opportunity, and that's a good news story. OK it's not $20 trillion. But 3, 4, 5 billion barrel resources are virtually unheard of these days, so even stressing this number down to the minimum number the experts stress it down to, it's still a big story."
Barry Goldstein, an executive director at the South Australian department of resources and energy, said "time will tell" the significance of the Arckaringa shale play.
Mr Goldstein said the Arckaringa play was worth disciplined investment and he fully expected that to occur. "We already know there are majors interested," he said.