We have slightly increased our valuation of Egdon’s conventional asset base from 12.5p/share to 12.7p/share (+2%). Moving parts include higher forecast Ceres production in FY19 and a stronger dollar offset by the removal of Holmwood. Our valuation of Egdon’s net shale resource (188,000 net acres) remains uncertain but, in our view, has the potential to be worth a risked c 100p/share based on current expectations of well cost, type curves and forward gas prices. Appraisal activity at Cuadrilla operated Preston New Road is set to provide information on horizontal well flow rates in the Bowland Basin with results due at the end of CY18 or early 2019. Initial flow-back gas at Preston New Road announced on 2 November is encouraging.
Our valuation of Egdon’s conventional asset portfolio increases by 2%, driven by higher than expected gas production from Ceres in FY19 and a stronger dollar, but offset by the removal of Holmwood where the site lease was not renewed. The operator is looking at new site locations for the drilling of Holmwood, and we expect to revisit this asset once new plans emerge. Production guidance for H119 stands at 150–180boed with Ceres gas production expected to increase over the year and H219 (Edison estimates 211boed for FY19).
Drilling operations are expected to commence at Biscathorpe (Egdon 35.8% part carried) in late 2018, aiming to evaluate the 1987 BP oil discovery with net mean prospective resource of 5mmbo. Spud of the play opening unconventional exploration well at Springs Road-1 in the Gainsborough Trough (Egdon 14.5% carried) is expected in early 2019. Drilling at North Kelsey and Resolution/Endeavour remains contingent on farm-down/external investment.
At end-July 2018 Egdon had cash of £2.8m, which we expect to cover anticipated costs (post farm-down) through most of FY19. This is contingent on oil and gas price realisations. We have slightly increased our conventional valuation from 12.5p/share to 12.7p/share. We believe the key value proposition for shareholders is Egdon’s net UK shale exposure and conventional E&A.