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Research: Energy & Resources
INEOS has completed the acquisition of Total E&P’s interests in a number of Gainsborough Trough area UK licences operated by IGas in which Egdon has equity interests. Total’s partial exit from the UK shale sector and INEOS’s increasing dominance as the largest holder of UK shale acreage will raise questions over integrated oil sector appetite. Nevertheless, INEOS’s commitment to the sector should ensure that planning applications, seismic surveys and exploratory wells are expedited. With INEOS taking on Total’s cost-carry and 14th round obligations we estimate that the implied transaction values range from $600/acre to $2,000/acre.
Written by
Egdon Resources |
INEOS acquires interest in Egdon core shale area |
Company update |
Oil & gas |
1 November 2017 |
Share price performance
Business description
Analysts
Egdon Resources is a research client of Edison Investment Research Limited |
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INEOS has completed the acquisition of Total E&P’s interests in a number of Gainsborough Trough area UK licences operated by IGas in which Egdon has equity interests. Total’s partial exit from the UK shale sector and INEOS’s increasing dominance as the largest holder of UK shale acreage will raise questions over integrated oil sector appetite. Nevertheless, INEOS’s commitment to the sector should ensure that planning applications, seismic surveys and exploratory wells are expedited. With INEOS taking on Total’s cost-carry and 14th round obligations we estimate that the implied transaction values range from $600/acre to $2,000/acre.
Year end |
Revenue |
PBT* |
EBITDA |
Net cash |
Capex |
07/15 |
2.1 |
(4.5) |
(4.0) |
5.2 |
(3.3) |
07/16 |
1.6 |
(2.7) |
(0.7) |
2.7 |
(2.4) |
07/17 |
1.0 |
(1.7) |
(1.2) |
6.1 |
(1.0) |
07/18e* |
2.5 |
(1.3) |
0.2 |
2.0 |
(3.0) |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and share-based payments. *2018 forecasts under review after FY17 results 31/10/17
Deal values: PEDL 139/140: Total’s cost carry balance implies a value of $2,000/acre. PEDL209: assuming INEOS exercises Total’s option the implied discounted value is estimated at $1,800/acre. 14th round: we estimate an implied value of $600/acre on the basis of work programme obligations: 3D seismic and an exploratory vertical well. Implied deal values are supportive of our indicative valuation of Egdon’s net shale acreage at $400/acre or 26p/share.
UK shale activity: Operator IGas intends to drill a shale exploratory well in the Gainsborough Trough, Springs Road-1 (Egdon 14.5% and carried by INEOS) later in 2017. While the operator does not currently have approval to frack at Springs Road-1, the well will drill a thick Lower Carboniferous tight sand and shale sequence and will be extensively logged and cored for play evaluation. This is a key well for Egdon in the heart of the company’s unconventional acreage position. The planned drilling of two wells and fracture stimulation at Preston New Road by Cuadrilla and at Kirby Misperton-8 by Third Energy will also provide important data points on UK shale gas recovery potential and prospective well pad economics.
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