Egdon Resources started the year with two important developments. The first was the announcement of the positive result of Egdon’s appeal against the refusal of planning consent at the Wressle oil field, which will allow the company to proceed with project development. The second was the farm-in agreement for the P1929 and P2304 licences with Shell. In November 2019, Egdon announced it had signed an exclusivity agreement for the licences, which contain the Resolution and Endeavour gas discoveries. The farm-down to Shell will allow Egdon to retain a 30% working interest in the licences and proceed with a 3D seismic survey planned for 2020. Our updated RENAV increases from 10.8p/share to 13.2p/share as we had previously assumed that Egdon would only retain a 15% working interest in the project.
Under the terms of the farm-in agreement, Shell will become the operator and will acquire 70% in both P1929 and P2304, with Egdon retaining a 30% interest. Shell will also pay 85% of the costs (70% after the $5m threshold) of a 3D seismic survey covering the Resolution and Endeavour gas discoveries, estimated to contain mean contingent resources of 231bcf and 18bcf, respectively. Shell will also pay 100% of all studies and manpower costs up to a well investment decision. The farm-in is conditional upon approval from the Oil & Gas Authority.
Egdon announced that its appeal against the refusal of planning consent at the Wressle oil field has been upheld and it has now been granted planning permission. The project has incurred numerous delays due to rejected planning applications but Egdon now has the green light to start working on development planning. Wressle has the potential to add c 150bopd of oil production to Egdon’s portfolio.
Our risked NAV valuation remains at 0.7p/share for producing assets and cash net of SG&A, rising to 13.2p/share (from 10.8p) if we include risked exploration potential. Our RENAV now accounts for a 30% working interest at Resolution versus the previously assumed 15% participating interest. A more detailed description of Egdon’s assets can be found in our recently published outlook note. Egdon’s FY19 cash position of £1.6m should cover its share of 3D seismic, however in case of a drilling decision at Resolution, additional funding would have to be secured.