Lucas Energy: A Different Way to Play the Eagle Ford Shale

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LEI_logoMaybe you’ve heard about the Eagle Ford Shale, a 24-county area in South Texas that could be the next big thing when it comes to Texas oil production. Actually, Eagle Ford could be the next big thing when it comes to U.S. oil production and this lucrative shale play could be one of the best chances the U.S. has for making legitimate progress toward breaking a decade’s long addiction to foreign oil.


A million barrels per day potential in Eagle Ford Shale

Unlike many of the major U.S. shale plays, Eagle Ford is believed to hold more oil than natural gas, a good thing in this era of elevated oil prices and depressed natural gas prices. Estimates have been tossed around that daily oil output at Eagle Ford could eventually reach 1 million barrels per day. That means over the course of a few years, Eagle Ford has the potential to be a 1 billion barrel (or more) field.

Of course, plenty of the well-known large- and mid-cap energy companies have footprints in Eagle Ford, but there are also some compelling microcap names with Eagle Ford exposure. Take Lucas Energy (NYSE AMEX – LEI) for example. As of a year ago, the Texas-based company had total estimated net proved reserves were 2.9 million barrels of oil equivalent, including 2.8 million barrels of crude oil reserves and 843.2 million cubic feet of natural gas reserves.

In January, Lucas added to its Eagle Ford presence by purchasing about 5,500 acres there from Hall Phoenix Energy LLC for $6.4 million. As a result of that purchase, Lucas now has a total of more than 27,000 gross acres in the region.

With a market cap of below $52 million, Lucas certainly fits the bill as micro-cap company, but that hasn’t prevented the company from working with some big names in Eagle Ford, including Marathon Oil (NYSE: MRO). Through the first 10 days of February, Lucas Energy’s average gross production from its Eagle Ford wells was 547 barrels of oil per day and that did NOT include two wells operated with Marathon. Lucas had more gross production from operated wells in the first ten days of February 2012, than for the entire month of January 2012, the company said in a statement.

Daily production increasing

For the first two quarters of fiscal year 2012, gross production from operated wells averaged approximately 195 BOPD. For the third quarter of the fiscal year 2012, production from operated wells averaged 226 BOPD, or a 16% increase. Lucas still anticipates average production from operated wells for the fourth quarter of fiscal year 2012 to be approximately 300 BOPD, or better, the company added.

Lucas is also selling some Eagle Ford assets with the intent of bolstering its balance sheet and possibly funding additional exploration and production activities. The company is looking to garner $106.8 million in cash inflows in 2012 through the sale of certain Eagle Ford assets.

Market is undervaluing LEI

Think about selling almost $107 million in assets this way: That’s more than double Lucas Energy’s current market value, implying the market is significantly undervaluing this company. No, Lucas isn’t profitable, but with an average price target of $5, the stock trading below $3 and assets worth more than its current market cap, the shares could be a steal.

Posted by Dr. Micro