Leni Gas & Oil - CEO Q&A


Leni Gas Oil Logo

Having reviewed Leni Gas & Oil (LSE:LGO), a Trinidad focused oil producer, last week, I got in touch with CEO Neil Ritson and asked him a series of questions regarding the company's past, present operations, and future prospects. This questions and answers article follows on from the original article as linked below. For background information on the company, read the linked article first which outlines the operations of the company and also provides technical analysis.

This article is a follow-on from the below post. For full context and information, read this article first:

Q. How would you summarise the investment opportunity that Leni presents and the business model of the company?
NR: A focus on overlooked proven oil reserves in secure jurisdictions has been coupled to excellent local skills and prudent capital discipline. This leads to us having reliable oil production growth, which is backed by a high quality portfolio in Trinidad and a well-tried and tested Spanish asset. Additionally, with the recently announced $50 million loan facility we have secured we will be able to ensure that future growth is well funded

Q. What would you class as being the company’s most successful development since its inception?
NR: Deciding to focus on the re-emerging onshore oil sector in Trinidad was the key decision that has shaped the Company’s future.  Selling the non-core assets in the US where the Company had no effective control and where the asset had limited short-term production potential was a logical step to achieving that focus on value growth in Trinidad

Q. Could you briefly note what the most significant news releases for Leni were in 2012?
NR: Amongst many significant events in 2012 the acquisition of the 350 million barrel Goudron Oil Field in Trinidad on the 22 October was the turning point.  We had to go to the market for additional capital to close the acquisition, but that single event sets the stage for the future value growth in the Company

Q. Leni is planning to farm-out or sell its Spanish assets to focus upon the Trinidad potential. A company is currently performing due diligence on the assets. Is a sale/farm-out likely and if not, what will happen to the licences?
Ayoluengo Field Spain
LGO operates within the Ayoluengo field in Spain
NR: Our recent decision to obtain a loan facility removes the immediate need to monetise the Spanish field and so we are now looking at a farm-in arrangement where the farminee would spend the necessary capital to increase production and take the lions-share of the additional production, whilst ensuring our base production level is maintained.  The degree to which we invest alongside a new partner will be dictated by their plans and our free cashflow.  Discussions are underway with several interested parties who emerged last year during the asset sale process.  These people have capital, but only want to deploy it in oil field operations and not in acquisition. We now have that opportunity to offer

Q. Why has the company chosen to focus on Trinidad and reduce its previous geographic spread?
NR: Three factors drive that decision: the size of the opportunity, the investment climate in Trinidad and the cost structure of the service sector there. 

Looking at each of these in turn; Onshore Trinidad has produced over 3 billion barrels of oil in the last 100 years. This is a major petroleum system – part of the East Venezuela Basin which is one of the richest oil plays in the world.  There are however reservoirs and regions of Trinidad that have so far only been lightly drilled and there are numerous fields, like Goudron, where oil recovery to date is low by international standards.  So there is significant oil yet to find and to produce. 

Secondly; the Trinidad government needs to return onshore production to previous 1990’s levels so as to provide feedstock to the major refinery on the island.  The State loses at least $40 per day of tax and royalty income for every flowing barrel if the refinery uses imported oil in place of indigenous production.  That is quite an incentive to stimulate onshore investment and LGO is in the vanguard of Company’s participating in that process.

Lastly; the service industries for the oil sector are competitively priced, well managed and experienced.  The presence of a large offshore industry and a long established onshore sector ensures that the services are there when needed and they are available at a fraction of the costs we face in Spain

Q. Leni’s oil production reached the 200bopd milestone in January 2013. Considering that tens of pump jacks are being ordered to the Goudron field in Trinidad. What production levels could be reached prior to year-end and what levels of revenue would this likely generate?
NR: Our target is to get to 400 bopd within a year of operatorship at Goudron, which is end of October.  We are confident we will reach or exceed this level, but it is too early to reset the targets.  Our after tax revenue from Trinidad is about $20 per barrel, so that equates to net cash of at least US$0.25 million per month

Q. 2P resource levels at the Goudron field are currently 7.2mmbl. Is there scope for this figure to increase and could any new technological techniques be applied to the Trinidad acreage to further boost output?
NR: Yes, this is the proven and probably based on a limited amount of new work.  There is an additional 30 million barrels associated with future primary production – basically infill drilling – and a further 60 million barrels of resource associated with a water flood project.  The most exciting technology we can deploy is coiled tubing drilling.  This has not been used in Trinidad to our knowledge, but is commonplace in North America.  It offers numerous advantages technically and from a cost perspective.  We would anticipate mobilising a coiled tubing unit to Goudron in 2014 when we expect to have a major infill drilling campaign

Q. What is the state of work at Moruga North and what future developments will take place there?
NR: We have been held up by title issues so this project remains on-going, but I would rather not set a timeline for getting the project underway.  Previous estimates have proved to be overly optimistic

Trinidad pumpjack oil
Oil being pumped from a reservoir in Trinidad
Q, How favourable is the investment environment in Trinidad for oil and gas producers such as Leni?
NR: See answer above. The tax and royalty regime in Trinidad is quite burdensome, but we are in discussions with the State oil company and the Ministry about reducing the royalty rate on our Goudron production in order to incentivise further investment and we are confident we can reach an agreement

Q. The company announced a $50m debt facility recently. Why was a debt facility decided upon as the most appropriate funding method?
NR: Debt provides the ability to accelerate the investment into Trinidad whilst maintaining control of our operations without needing to seek significant additional capital from the shareholders.  On a cost of capital basis this provides the very best use of assets and we are confident that the facility will provide the capitalisation of the Company that is required for it to grow efficiently

Q. What can shareholders expect the company to use this money for?
NR: The funds will be largely deployed in Trinidad and exclusively on activities with near-term production impact

Q. Leni launched court proceedings in relation to the disposal of the Malta assets. Could you briefly outline what the issue being disputed is?
NR: LGO claims that Mediterranean Oil and Gas (MOG) deliberately misled the Company over the state of negotiations with potential farminees in July 2012 in order to acquire LGO’s 10% at a marked discount to the true value.  MOG claim they had no duty to inform LGO.  We are happy to let the High Court decide the case on its merits

Q. How confident is the company that the court will find against Mediterranean Oil and Gas and what would the implications of the result be? Would there be any significant consequences if Leni were to lose the court case?
NR: This is not a frivolous action and naturally we expect to win, however, the only consequence of LGO losing the action are legal costs which are well within our ability to pay.  The consequences for MOG are far more serious

Q. A non-binding heads of terms agreement was signed with Maxim Resources in March. What would the agreement grant Leni access to?
NR: If Maxim successfully acquire the South Erin Leases, which contain the Jasmin Field, in southern Trinidad LGO will have the exclusive right to develop the field which is currently producing and we believe can support the drilling of up to 40 additional wells.  LGO’s investment into Maxim is designed to ensure their chances of success are increased.  LGO will come out of the process with a shareholding in Maxim and at least a 50% share and operatorship of the South Erin Block.  This process will however take some time so it is a project that will complement Goudron in the future

Q. Is Leni looking to complete any further acquisitions? If so what stage of the development cycle would these be in and what geographical locations are preferable?
NR: We are looking at a further acquisition in Trinidad that is seen to provide a very strong position in a longer-term, exploration oriented, asset.  The focus will however remain Trinidad.  There is also a Competitive Bid Round onshore in Trinidad later this year so we will take a good look at that too

Q. Leni’s market capitalisation currently stands around £20m – do you think this is an accurate reflection of the company’s position?
NR: When we draw down the first tranche of the loan and accelerate the development programme I am sure we will be due a share price re-rating.   The market is very bearish at present so we have to accept we will remain undervalued to true underlying NAV for the foreseeable future. The prospects are nevertheless very good

Q. Following the agreement of the debt facility, what key news events are there for investors to look out for in 2013?
NR: Two things investors should look for are a partner to co-invest with us in Spain and perhaps then some new Group production targets for 2013 and beyond

Goudron Field Pumpjacks
New pumpjacks online at the Goudron Field in Trinidad


  1. Great great interview. thank you to yourself and my ritson

  2. very attractive little company. greatly helped my Research


  3. Many thanks to yourself and NR .
    Very good interview
    Great company to invest in and derisked due to the $50bmil funding

  4. Great company - Good to see Ritson has really pulled this around, seems to have a focused clear strategy and his head screwed on.

  5. Thanks NR - very useful to hear your current thoughts/plans for our company. Hopefully the 400bopd Oct 2013 target for Goudron will be exceeded in July after the 30 new pumps have all been installed....

  6. Except the debt facility he referred to seems to have been non existent.

  7. E1ite, have you changed your view on the company since the SP drop with the placing etc?

    1. Hi there,

      Not yet although the technical position is not pleasing with a medium term downtrend although Leni is towards the bottom of the channel. The market (and I) eagerly await the tying up of the debt facility and I expect the matter under negotiation remains terms and conditions (e.g. the interest coupon).

      Disappointing so far but the bottom line is that the company is producing 400bopd of 'profitable oil'


    2. Thanks for the quick reply! a lot of negative sentiment towards LGO at the moment. Was wondering if you had turned too haha. Completely agree with the "bottom line" and the production should hopefully increase which can only be a good thing.

      Thanks again.

    3. Doubts have been cast over the debt facility, but at the end of the day it is the company BOD that knows the truth.In the words of NR regarding the debt facility:

      "the structures of the facility take time to set up in multiple jurisdictions. Just routine"

  8. Quite a while since your original review on LGO El1te, the SP has been quite volatile with the placement and expected news on $50m loan etc. Would you still place LGO under your 'buy' rating? Obviously you got a bit unlucky reviewing the company just before a placing ;)

    1. Still as a buy rating as per my 'Review Results' page. The share price almost broke out of the medium-term downtrend I alluded to in the comment above, but failed to do so which was a bit disappointing. Thus the shares failed to break 1p and returned back to 0.8p. There should be significant support at this level, and I would expect a move back up in due course. The shares did exceed my review price on the spike, but I chose not to remove the Buy Tag at that point.