Egdon Resources — Year-end revenue up by more than 530%

Egdon Resources (LN: EDR)

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Research: Oil & Gas

Egdon Resources — Year-end revenue up by more than 530%

Production from Egdon Resources’ Wressle-1 well continues to exceed forecast expectations, delivering an average gross rate of 656bopd (197bopd net) in the year ending July 2022. This high rate, combined with high commodity prices, has driven a 530% increase in revenues to £6.91m for the period, up from £1.09m in 2021. With cash of £4.8m, Egdon says it is funded for near-term committed activities. It will now look to increase Wressle production further. Onshore drilling projects have been held up by planning permission refusals, while the UK government’s stance on shale gas extraction has created uncertainty. Progress offshore has been affected by Shell’s withdrawal from the licences holding the Resolution and Endeavour gas discoveries and Egdon must carry out a 3D seismic survey across the P1929 licence by April 2023 to maintain its licence.

Elaine Reynolds

Written by

Elaine Reynolds

Analyst, Energy & Resources

Oil & Gas

Egdon Resources

Year-end revenue up by more than 530%

Oil and gas

QuickView

10 November 2022

Price

3.4p

Market cap

£18m

Share price graph

Share details

Code

EDR

Listing

AIM

Shares in issue

543m

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 continuing to exceed expectations.

Sustained high oil price and structurally higher gas prices (in Europe) following Russia’s invasion of Ukraine.

Potential for shale gas assets to come into play.

Bear

Continuing shale gas moratorium.

Unsuccessful appeals for planning permission.

Failure to meet Resolution obligations would result in losing licence.

Analysts

Elaine Reynolds

+44 (0)20 3077 5713

James Magness

+44 (0)20 3077 5700

Egdon Resources is a client of Edison Investment Research Limited

Production from Egdon Resources’ Wressle-1 well continues to exceed forecast expectations, delivering an average gross rate of 656bopd (197bopd net) in the year ending July 2022. This high rate, combined with high commodity prices, has driven a 530% increase in revenues to £6.91m for the period, up from £1.09m in 2021. With cash of £4.8m, Egdon says it is funded for near-term committed activities. It will now look to increase Wressle production further. Onshore drilling projects have been held up by planning permission refusals, while the UK government’s stance on shale gas extraction has created uncertainty. Progress offshore has been affected by Shell’s withdrawal from the licences holding the Resolution and Endeavour gas discoveries and Egdon must carry out a 3D seismic survey across the P1929 licence by April 2023 to maintain its licence.

Removal of gas constraints to boost Wressle further

Production from Wressle is constrained by gas handling equipment, with pressure tests indicating that flow rates of 1,200–1,500bopd could be achieved. Egdon‘s gas monetisation plan has commenced, with all consents in place for the Ashover Grit gas to generate electricity for onsite use by the end of 2022. Procurement is underway to expedite the export of up to 1.75MW of electricity. The company also plans to produce from the Penistone Flags reservoir, which has been audited to hold mid-case contingent oil and gas resources of 1.53mmbbl and 2bcf.

Focus on conventional oil and gas

Planning consent is in place for a sidetrack at Keddington (45% WI), which could deliver 183,000bbl of incremental production. 3D seismic reprocessing is being finalised and will determine the final sub-surface location for the drilling, planned for 2023. Planning permissions for a drilling at Biscathorpe and North Kelsey were both refused and have been appealed. The Biscathorpe hearing took place on 11 October and a decision is awaited. At Resolution, the deadline to carry out a 3D seismic survey has been extended to April 2023, so the company may seek to extend this further. The nearby Shell/Deltic Pensacola well is due to commence drilling shortly.

Shale gas moratorium reimposed

A moratorium on shale gas was briefly lifted by the UK government in September 2022, only to be reinstated by Rishi Sunak in November. A lifting would be transformational for Egdon, which holds independently estimated net mean volumes of gas initially in place of 37.6tcf in the Gainsborough Trough.

Historical figures

Year
end

Revenue
(£m)

PBT
(£m)

EPS*
(p)

EBITDA
(£m)

Net cash
(£m)

Operating cash flow (£m)

07/20

1.0

(4.7)

(1.5)

(4.7)

0.8

(0.2)

07/21

1.1

(1.6)

(0.5)

(1.2)

2.0

(1.1)

07/22

6.9

2.4

0.6

4.7

4.8

4.2

Source: Egdon Resources. Note: *Reported.

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Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

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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 £60,000 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. Where Edison has used consensus estimates within this publication, we do not guarantee their accuracy or completeness.

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 2022 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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