* Estimate of potentially large shale oil, gas potential in
* Analysts say Linc shale potential highly speculative
* Linc CEO expects early well production by end of 2014
* Linc seeks partner to develop shale asset
* Shares hit 18-month high
(Recasts, updates with CEO, analyst comments)
By Rebekah Kebede and Sonali Paul
PERTH/MELBOURNE, Jan 24 Shares in Linc Energy
soared on Thursday, a day after the firm announced it
was sitting on potentially large resources of shale oil in South
Australia, although some experts urged caution since the
estimate is at very early stage.
Two respected independent consultants estimated Linc's
100-percent owned Arckaringa Basin could hold between 103
billion and 233 billion barrels of oil equivalent (boe) in
formations comparable to liquids-rich shale plays in the United
But as the share price shot up by more than 30 percent at
one stage on Thursday, and Australian media trumpeted the "$20
trillion shale oil find", some urged caution on the shale play
in the little explored Arckaringa Basin.
"It's at a very early stage... it's a theoretical play,"
said Peter Strachan, an analyst with Stock Analysis in Perth.
The huge bump in Linc's share price even took the company's
chief executive, Peter Bond, by surprise.
"We didn't expect it to go this nuts," Bond told Reuters,
while adding that he chalked up the gains to the company being
"A lot of what you are seeing is a re-rating of the company
based on people starting to understand that the assets we have
are far better than what they have been giving us value for," he
Bond, Linc's largest shareholder, owns 39 percent of the
HOW MUCH IS RECOVERABLE?
At the heart of excitement around Linc's new find were
figures displayed prominently on the first page of the company's
announcement: 103 to 233 billion barrels of oil equivalent.
But the estimates are what are called "unrisked prospective
resources", which give no indication as to how easily the
reservoirs can be tapped or whether oil and gas can be
Some analysts zeroed in on another estimate -- the 3.5
billion barrels that are likely to be recoverable -- that was on
a chart on the third page of its release and which they said
gave a more accurate picture.
"I think the industry is becoming ill-disciplined in talking
about volumes of oil that are in place (which) is so different
to what is actually recoverable," Johan Hedstrom, an energy
analyst with Bell Potter Securities in Sydney, said.
Linc's Bond said media reports perhaps should have focused
on the likely recoverable figure but defended the announcement.
"Most of them don't know the work we've done," Bond said,
adding that Linc is confident there is a large amount that is
"How much is recoverable is always the question. Is it 3
billion barrels or is it 203 billion barrels? Even if it's 3 or
4 billion barrels... that's a massive find in this part of the
world. No matter how you cut it, it's still a massive outcome,"
Linc has appointed Barclays Capital to help it find a
partner with experience in shale drilling and the company
expects to announce a partner in the next six months, Bond said.
Linc's shares soared to a high of A$2.83 on Thursday and
last traded up 23 percent at A$2.67.
Its market value has more than quadrupled over two months as
Linc, mainly known for its efforts to develop underground coal
gas-to-liquids projects, recently started producing oil in the
IT'S NOT JUST THE ROCKS
Even if Linc ends up finding huge amounts of oil and gas in
the Arckaringa Basin, it will still face huge challenges, shared
by other developers in Australia's fledgling shale industry.
Bond said he expects production could begin by the end of
2014, but some analysts said commercialisation, even in ideal
circumstances, would take about five years.
Geoff Barker, partner at Resource Investment Strategy
Consultants (RISC) in Perth, said even if the geology was right,
the cost issue was formidable in Australia.
"Even if you've got rocks which have the necessary
conditions for success, the big challenge we have is one of
cost. Our cost structures are very high."
Costs can be several times what U.S. shale developers pay --
drilling a shale well in the U.S. costs about $10 million, while
in Australia prices are 50 percent higher at about $15 million.
And unlike the United States, where a "shale gas revolution"
turned it from an importer to a prospective exporter in a matter
of a few years, Australia has little infrastructure in the
far-flung locations where most shale exploration is occurring.
But high risks can mean high rewards.
"There's really two times when global oil and gas
companies...come to large resources like this. Firstly it's at
the early stage, where they pay a smaller amount to take on a
higher amount of risk, but the reward is potentially there....
Or they pay a fortune when it's completely de-risked," said
Ian Davies, managing director of Senex Energy, an
Australian company which also has shale acreage.
(Editing by Ed Davies)