Egdon Resources — Wressle key to production increase

Egdon Resources (AIM: EDR)

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Research: Energy & Resources

Egdon Resources — Wressle key to production increase

Egdon Resources’ core focus is on its conventional assets, and the commencement of oil flow at Wressle was the most significant event for the six months to 31 January 2021. The company is targeting 150boed net here, pending further activity. Production during the period was 92boed, down from 178boed in H120 and guidance for FY21 is 110–130boed. Further planned onshore drilling will depend on successful farm-outs, while offshore, the 2020 farm-out of the Resolution and Endeavour gas discoveries to Shell will fund a 3D seismic survey, though this has slipped into 2022. Egdon is also screening geothermal opportunities, and signed an MoU with Creative Geothermal Solutions (CGS) to facilitate progress both within Egdon’s portfolio and beyond.

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Energy & Resources

Egdon Resources

Wressle key to production increase

Oil & gas

QuickView

29 April 2021

Price

1.65p

Market cap

£7m

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Share details

Code

EDR

Listing

AIM

Shares in issue

328m

Business description

Egdon Resources is an AIM-listed, onshore focused oil and gas exploration company. The group has conventional and unconventional assets in the UK.

Bull

Wressle to add an estimated 150bod net.

Resolution 3D funded by farm-out to Shell.

Wressle and Biscathorpe robust at low oil price.

Bear

Unconventional activity on hold due to moratorium.

Resolution 3D delayed to 2022.

UK onshore planning process can be lengthy.

Analysts

Ian McLelland

+44 (0)20 3077 5756

Elaine Reynolds

+44 (0)20 3077 5713

Egdon Resources is a client of Edison Investment Research Ltd

Egdon Resources’ core focus is on its conventional assets, and the commencement of oil flow at Wressle was the most significant event for the six months to 31 January 2021. The company is targeting 150boed net here, pending further activity. Production during the period was 92boed, down from 178boed in H120 and guidance for FY21 is 110–130boed. Further planned onshore drilling will depend on successful farm-outs, while offshore, the 2020 farm-out of the Resolution and Endeavour gas discoveries to Shell will fund a 3D seismic survey, though this has slipped into 2022. Egdon is also screening geothermal opportunities, and signed an MoU with Creative Geothermal Solutions (CGS) to facilitate progress both within Egdon’s portfolio and beyond.

Strategy to grow production

The additional estimated net production of 150boed from Wressle will grow production from the current 92boed (with Wressle contributing to this rate from 30 January 2021). The well has been undergoing test production and clean-up since January 2021 and will require a successful proppant squeeze to achieve full production, pending regulatory approval. A delay in approval could have an impact on full year production. Further onshore drilling is planned at Biscathorpe (also pending approval) and North Kelsey in c2021/22. The Resolution Zechstein gas discovery, with gross mean contingent resources of 231bcf, has the potential to add the most upside, but with 3D delayed into 2022, drilling is unlikely before 2023. Renewed focus on the Zechstein in the UK following the 2020 Darach oil discovery will also see Shell drill at Pensacola in 2021.

Geothermal potential

Egdon has undertaken a review of the geothermal potential in its existing portfolio and has identified shut-in wells in the Dukes Wood and Kirklington oil fields as initial candidates for geothermal heat production. In April 2021 the company signed an MoU with CGS to screen potential geothermal projects.

Financials: Farm-outs to fund drilling

Farm-outs will be required to fund activity at Biscathorpe and North Kelsey. The company refinanced the business via a £1m loan facility with Union Jack Oil and the issue of £1.05m convertible loan notes with Petrichor Holdings BV, and had cash and cash equivalents of £2.422m at 31 January 2021.

Historical figures

Year
end

Revenue
(£m)

PBT
(£m)

EPS*
(p)

EBITDA
(£m)

Net cash
(£m)

Operating cash
flow (£m)

07/19

2.2

(1.7)

(0.6)

(0.6)

1.6

(0.9)

07/20

1.0

(4.7)

(1.5)

(1.0)

0.8

(0.2)

Source: Egdon Resources. Note: *Reported EPS.

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This report has been commissioned by Egdon Resources and prepared and issued by Edison, in consideration of a fee payable by Egdon Resources. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Egdon Resources and prepared and issued by Edison, in consideration of a fee payable by Egdon Resources. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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