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Investor Linc Newsletter

September 2011 /19


Chief Executive Officer Peter Bond

Linc Energy's Business Plan Revealed

Welcome to InvestorLinc. As always, the team at Linc Energy has been extraordinarily busy across a number of fronts – one of which has been the buying and developing of oil producing assets in the United States.

I’ve been asked a few times lately whether Linc Energy is moving away from UCG, or have we given up our dream of UCG to GTL. The simple answer is no we definitely haven’t. In fact Linc Energy is currently constructing its fifth UCG gasifier at the Chinchilla Demonstration Facility. Known as Gasifier 5 it is the UCG design that the company will be rolling out for commercial use and joint venture opportunities around the globe.

I can’t tell you just how excited I am about the technological advancements that have been applied to Gasifier 5. This design has created significantly more gas flow from one well at a lower cost base than any other design to date. In addition, Gasifier 5 will be easier to construct and simpler to operate. Just imagine what that sort of increased efficiency and production does to your commercialisation opportunities. We are now actively negotiating and working on several UCG opportunities in Europe, Africa, the United States, Australia, China, Vietnam and Uzbekistan, to name a few.

Also earlier this year, I drove the Linc Energy VW Polo over 6,000 kilometres across Australia on the diesel we produced from the UCG to GTL facility in Chinchilla. This exercise not only proved that our technologies can take stranded coal and make UCG gas for cleaner Fischer-Tropsch diesel, but that the final diesel product comes with a host of performance and environmental benefits. Now, that same UCG to GTL facility is busily producing synthetic jet fuel (Jet A1) so that I can repeat that trip by air in a jet fuelled by Linc Energy’s synthetic jet fuel produced from the facility. My aim is to take off early next year and fly over the similar route taken to Perth. Stay tuned for an announcement about this exciting event in the near future.

When I took over Linc Energy I knew we had to develop UCG according to a very high western standard – one that would be cost effective and easy to duplicate whilst producing high gas flows. The new Gasifier 5 UCG technology we have developed now ticks all of those boxes. It is truly the best and only genuine UCG process capable of reaching commercialisation on a large scale. No other UCG company has this technology. In fact, most other UCG companies cannot even replicate the achievements we made 10 years ago.

Linc Energy’s UCG Gasifier 5 is a ‘game changer’ in the world gas market. The potential for UCG is huge and Linc Energy is definitely NOT turning its back on these opportunities. We are the world leader in UCG and UCG to GTL and nothing will stand in our way to bring the technology to its full global potential.

On another note, our push into oil and EOR continues aggressively. I believe the ERG oil deal in Texas will be finalised soon, which will immediately add about another 3,300 barrels of oil production per day to our total. ERG also provides a significant opportunity for further oil production with more drilling. As I’ve said previously it is a necessity for us to build our business model on a significant traditional oil platform to produce early cash flows to drive the company towards immediate profits with the ability to take a significant ‘second bite at the cherry’ via our EOR philosophy, which will create even further cash flow. As I have said: “It is great to have a plan to change the world, but it is even better if you have a plan to fund it all”. That is what our strategy is all about.

We also need coal sales now to add more cash to the balance sheet to allow us to buy and build cash positive oil production assets, such as the Glenrock assets (acquired from Rancher) in Wyoming and the ERG assets in Texas. Cash flow as you know is ‘king’. We are currently living in extraordinary times that allow us to buy strong cash flow positive oil assets at a relative discount because of the strong Australian dollar. Whilst interest rates in the United States are low, we have a unique opportunity to build out a very unique business model.

As I have said before, Linc Energy’s 12 month plan is to purchase enough oil producing assets to produce 10,000 to 12,000 barrels of oil per day, giving the company about $300 to $400 million in revenue per annum. The EBITDA from these oil operations will enable Linc Energy to be cash flow positive (not including large CAPEX projects). Subsequently I'd like to officially announce Linc Energy’s new business model, which has restructured the company into three clear divisions to execute its key goals and projects:

Oil and Enhanced Oil Recovery

This division will create immediate cash flow with significant upside via EOR. We will focus on four key assets:-

  • Umiat in Alaska, with the potential production of 50,000 barrels per day
  • Glenrock fields in Wyoming, with EOR using carbon dioxide injection, with potential production of 10,000 barrels per day
  • ERG oil assets in Texas/Gulf Coast, with the aim to build a business of 10,000 barrels per day in that region
  • SAPEX in South Australia, with a drilling program to delineate oil and shale oil potential

My oil goal is to produce a billion dollars in revenue from oil, and have a billion barrels of 2P oil reserves. The recent Umiat purchase, once developed, will go a long way to meeting this goal. We are building a generational income model, crossing from immediate balance sheet growth to long term oil and EOR cash flow models whilst meeting our national and generational needs by producing commercial clean energy platforms.

Coal and Clean Coal

This covers our coal portfolio, which via several key sales, moves large cash injections onto the balance sheet with significant returns on investment, as well as creating coal joint ventures and clean coal (including the PowerHouse aboveground gasification process which unlocks clean coal opportunities in carbon constrained environments). Linc Energy will maintain its foothold in coal and continue to drill on some of the largest coal deposits in the world, like the SAPEX areas in South Australia and the Powder River Basin in Wyoming. It makes sense to continue to be a leader in the clean coal sector and to own our own coal.

Clean Energy and Clean Fuels

This is where we develop our UCG and GTL expertise into significant commercial opportunities. The profit capability we hold as the only cost effective UCG or GTL plant operation in the world is simply huge.

So the philosophy of Linc Energy’s three divisions is all about:

  1. Oil: Immediate cash flow with a big upside from further drilling and EOR
  2. Coal: Immediate cash injection, large profit execution, cash flow, joint ventures with strong cash flow opportunities, whilst maintaining a sizable and valuable coal resource ownership platform
  3. Clean Energy/Fuel: Massive long term potential whilst we build our UCG operations and some of the back end technologies like GTL to value add to traditional coal and gas

Linc Energy is a fantastic company with great people and an excellent business strategy that positions us at the forefront of one of the world’s energy trends. My aim is to grow the company aggressively and safely. The first step in doing this is to create cash flow from oil production so we don't need to eat into the balance sheet to pay rent or wages. I hope this answers a few people’s questions about Linc Energy's intentions and where we are positioning the business now and in the future.

A few more achievements of late at Linc Energy include:

  1. We have started drilling for oil in the Arckaringa Basin and have spudded three oil wells, the most recent being Cootanoorina 2
  2. We have progressed the sale of the Teresa coal asset and are now down to the final two prospective buyers. This sale process is getting very busy now
  3. Oil production on the Glenrock assets in Wyoming has increased from an initial 190 barrels per day, to over 240 barrels per day, with the EOR carbon dioxide enhancement program to commence this quarter
  4. We have drilled for oil shale on the SAPEX assets in South Australia and have received very encouraging drill results. Our program is assessing an area within our tenements of  about a million acres which have shale oil potential
  5. We are rolling out our XGAP management philosophy across the entire company with extraordinary results. This is the management program I spoke briefly about in the last InvestorLinc. Basically XGAP is a program to help ensure efficient execution and focus on our core projects. To date it is working very well.

As you may also know the share market has the jitters and is not valuing Linc Energy anywhere near what I believe is its proper and reasonable value. This is why we instigated a buy-back program. That said, we are powering ahead on every other front and our value is increasing in real terms and at a grass roots level. I hope to see that value reflected in the share price soon as I start a roadshow around the world to showcase our achievements and new business strategy. I wish you all the very best until next time.