Linc downplays A$20 trillion valuation

04:04, Jan 24 2013

Australia's Linc Energy is distancing itself from estimates in today's media that it may be sitting on A$20 trillion ($25 trillion) worth of oil in South Australia's Arckaringa Basin.

Linc's shares rocketed more than 30 per cent to an 18-month high of A$2.82 today after it said yesterday that two independent consultants estimated there was an "unrisked prospective resource"of up to 223 billion barrels of oil equivalent in three shale formations within its 100 per cent-held Arckaringa exploration permits.

Media outlets including the Adelaide Advertiser appear to have multiplied the resource estimate by the prevailing oil price - above US$95 a barrel - to arrive at the A$20 trillion figure.

But Linc chief executive Peter Bond told BusinessDay: "That's not our valution. 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. It's too hard.

"Obviously if you want to stand up there and come up with US$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 - the lowest category of certainty - 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."

Bond said 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 US$1-US$2 a barrel, and 1P (proven reserves) at US$10/barrel.

Shale plays tended to be valued on an acreage rate, ranging from US$1000-US$2000 an acre at the low end, to US$20,000 an acre at the high-end.

But 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.

Bond said Linc paid A$104 million for its exploration acreage at Arckaringa four years ago, and spent A$30m on drilling 15-16 holes, of which half targetted shales, and 1000 kilometres of 3D seismic.

But Linc is now looking for a "farm-in" partner to spend up to A$300m to develop the resource and prove up reserves.

Bond said Linc's consultants estimated there was a minimum of 3.5 billion barrels of oil equivalent at Arckaringa.

"It's a multi-billion barrel opportunity, and that's a good news story. OK it's not A$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."

Sydney Morning Herald