Egdon’s interim results confirmed that production is on track to meet FY16 guidance of 180boe/d with 204boe/d delivered in the first half. In the short-term, investor focus is likely to remain on shale gas planning and development of the Wressle oil discovery. Planning decisions for Third Energy’s KM-8 and Cuadrilla’s Roseacre Wood and Preston New Road shale appraisal sites are expected over the next six months. Planning approvals potentially pave the way for exploration and appraisal at Springs Road, an asset in which Egdon has a 14.5% carried interest. In our view, Springs Road is ideally located to test thick, gas-mature Bowland shale in the prospective Gainsborough Trough and remains a valuable asset within the Egdon portfolio. We publish updated 2016 financial forecasts and a conventional RENAV of 22p/share. We also include 22p/share for unconventional acreage based on recent transaction values.
We believe successful planning decisions at KM-8, Roseacre Wood and/or Preston New Road over the next six months have the potential to pave the way for Springs Road, where Egdon retains a 14.5% carried interest. Two wells planned at Springs Road appear to be ideally located to test thick, gas-mature Bowland Shale – this is combined with a site location that we believe should not prove contentious from a planning perspective. Ease of site access, distance from areas of high population density and access to a decommissioned missile facility, providing the foundations for a well pad, all make the chosen site well suited for shale gas exploration.
Egdon expects first oil from Wressle in H2 CY16, adding c 125bopd to net production, lowering group cash operating costs and generating positive free-cash flow. Egdon’s Wressle CPR is nearing completion, which should give the market more detail on the development costs and production profile supporting a field development plan (FDP), which will be submitted in May 2016.
Our updated valuation includes 3.4p/share for core production and development assets, including cash and net of G&A, and 18.6p/share for risked E&A. We use a tentative $/acre valuation for net unconventional acreage at 22p/share. We believe Egdon retains financing flexibility, holding more than £5m cash and no debt, and expect further farm-downs to fund near-term exploration.