Egdon Resources’ recently announced results showed that FY19 production increased by 117% to 182boepd, largely driven by the Ceres gas field. Revenue increased to £2.2m from £1.2m in FY18 and the company remains debt-free following the c £2m June 2019 capital raise. In FY19, Egdon made significant progress at its unconventional Springs Road play, with the Bowland Shale sharing key characteristics with North American shale. However, in November 2019 the UK government announced a moratorium on hydraulic fracking, bringing all UK shale appraisal to a halt. Egdon is working closely with the Oil and Gas Authority (OGA) and other regulators to demonstrate that it is possible to operate fracking safely at Springs Road. Our updated RENAV decreases from 11.5p/share to 10.8p/share, based on FY19 results, rolling forward the NAV and, to a lesser extent, updated for FX rates and reduced short-term commodity prices.
Egdon’s FY19 production was in line with guidance at 182boepd. The company also drilled Springs Road-1 and Biscathorpe-2 wells as initially planned and is currently working on delivering a Resolution farm-down. It expects a planning decision on Wressle before the end of the year. Egdon’s production guidance for FY20 stands at 130–140boepd driven by continued strong Ceres production (we estimate 140boepd for FY20).
Following a 2.9ML seismic event at Preston New Road, the UK government imposed a moratorium on hydraulic fracturing. This affects activity at Springs Road, where Egdon had made significant progress in 2019. The company and the industry are fully committed to working closely with the OGA and other regulators to demonstrate that they can operate safely and in an environmentally responsible manner. We note that the government recognises that gas will remain a key part of the UK’s energy mix as it moves towards net zero emissions by 2050.
Following the 2019 capital raise, Egdon is fully funded for its near-term strategy, with planned 3D seismic at Resolution expected to be funded by the farm-down. Our current NAV is 0.7p/share for producing assets and cash net of SG&A, rising to 10.8p/share if we include risked exploration potential. As a consequence of the hydraulic fracturing moratorium and current high-level uncertainty in the UK, we cannot attribute value to Egdon’s shale gas option.