An Australian energy company, Linc Energy, discovered a potential large shale oil deposit in South Australia in January 2013. Independent consultants estimated there were up to 223 billion barrels of oil equivalent in the deposit. This led Linc Energy's stock price to increase 24% and speculation that the estimated reserves could be worth $20 trillion in revenue. However, the CEO cautioned that the estimates were uncertain and it was too early to value the potential discovery. By 2016, Linc Energy had entered voluntary administration due to debt issues, showing that the estimated reserves did not materialize into actual revenue for the company.

1. Linc Energy
• An Australian energy company specialising in
finding and producing oils, gas and fuels
• Bought land in South Australia near Coober Pedy to
try and find oil
• In January 2013 Linc thought they had discovered a
large shale oil deposit

2. Expectations of a Big Find…
$6.00
$7.00
$8.00
$9.00
$10.00
$11.00
$12.00
$13.00
$14.00
Jan 2,
2013
Jan 3,
2013
Jan 4,
2013
Jan 7,
2013
Jan 8,
2013
Jan 9,
2013
Jan 10,
2013
Jan 11,
2013
Jan 14,
2013
Jan 15,
2013
Jan 16,
2013
Jan 17,
2013
Jan 18,
2013
Jan 21,
2013
Jan 22,
2013
Jan 23,
2013
Source: Google Finance

3. Oil Discovery
• Linc informed the ASX of this development…
• How much shale oil is this?
24th January 2013
“Two independent consultants estimate there is an ‘unrisked
prospective resource’ of up to 223 billion barrels of oil equivalent in
three shale formations.”

4. Oil Discovery Total shale oil deposits in Australia
before Linc’s discovery…
25 billion
barrels
223 billion
barrels

5. Estimated Revenue
Price of oil in January 2013…
US$95 per
barrel
X
223 billion
barrels
= $US20
trillion
20 000, 000, 000, 000,

6. The CEO
“$20 trillion is not our valuation. 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 $US100 times 100
billion barrels, you’ll come up with a big
number. That’s not how you value oil
resources anyway.’’

7. But the Share Market says…
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$18.00
Jan 2,
2013
Jan 3,
2013
Jan 4,
2013
Jan 7,
2013
Jan 8,
2013
Jan 9,
2013
Jan 10,
2013
Jan 11,
2013
Jan 14,
2013
Jan 15,
2013
Jan 16,
2013
Jan 17,
2013
Jan 18,
2013
Jan 21,
2013
Jan 22,
2013
Jan 23,
2013
Jan 24,
2013
Day of announcement…
+24%
Source: Google Finance

8. 3 Years Later…
15th April 2016
Former Australian listed market darling Linc Energy
has entered voluntary administration with the oil-
and gas-focused company buckling under an ongoing
debt restructure and recapitalisation.
Linc, which once boasted a market value of $2 billion
when listed in Australia, was worth $US15 million
when its Singapore-listed shares last traded on March
24.

9. What About the $23 Trillion?
• The estimated reserves never eventuated to become Revenue for the company
• Because “finding oil” doesn’t mean oil has been found…
How far down is the oil? The deeper it
is the harder and costlier it is to mine.
or
Is it good quality oil? 24th January 2013
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.’’
If we can dig it up, what price
will oil be when we’re ready
to sell it?
Source: Nasdaq

10. Using Accounting Theory to not lose Money
The possible oil find in January 2013 was important for investors
Relevance
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them:
• Evaluate past, present or future decisions
• Confirm or correct past decisions

11. Using Accounting Theory to not lose Money
But that needs to be balanced with other considerations…
Reliability
Information is reliable if it:
• Is free from estimates
• Is based on data that can be checked or
verified with a source document to
verify it
24th January 2013
“Two independent consultants
estimate there is an ‘unrisked
prospective resource’ of up to 223
billion barrels of oil equivalent in
three shale formations.”
24th January 2013
“Two independent consultants
estimate there is an ‘unrisked
prospective resource’ of up to 223
billion barrels of oil equivalent in
three shale formations.”
Conservatism
Caution must be used when preparing financial
reports
• Losses are recorded when they are
expected to occur
• Gains are only recognised once they are
certain to happen (i.e. they have been
earned)