Egdon Resources retains several value catalysts over the course of 2017/2018; these encompass the company’s conventional as well as unconventional asset portfolio. Key catalysts include exploration and appraisal at Springs Road, Holmwood, Resolution, Biscathorpe, and North Kelsey as well as Wressle development. Capital commitments are being kept to a minimum through existing cost-carry arrangements and planned farm-outs. Planning consent approvals continue to hinder the pace of activity; however, central government appears to be supportive of unconventional gas development, attracting sector investment from the likes of Total, Centrica and Ineos. Our Egdon valuation has increased slightly to 21.5p/share risked conventional value and 26.0p/share for indicative unconventional upside potential.
Egdon is investing in five key conventional projects in 2017/2018: Wressle field development, Holmwood and North Kelsey exploration, as well as appraisal of Resolution and Biscathorpe. Capital commitments are being kept to a minimum with Egdon’s net capital budget for 2018 estimated at £3m, subject to completion of farm-outs and receipt of government approvals. Holmwood in particular has attracted recent industry interest after further Weald Basin (Kimmeridge limestones) exploration success. The addition of Fiskerton Airfield to the company’s asset base, announced recently, is a small positive adding c $0.5m to core NAV.
Egdon’s unconventional portfolio, albeit still in the exploratory stage, remains a key part of the company’s investment story with a total holding of over 200,000 net shale prospective acres. 2017 should see an increase in physical activity with exploration results from Springs Road and a potential flow test at Cuadrilla’s Preston New Road. Valuation of Egdon’s unconventional licence position is subjective at this point given uncertainties that exist around planning timelines, well economics and play sweet spots. We expect reduced uncertainty in relation to UK shale commerciality and well economics over the course of 2017/2018.
Our valuation consists of a core (2P) valuation of 3.5p/share, 18.0p/share for risked exploration and appraisal ($70/bbl long-term Brent) and indicative shale upside of 26.0p/share. Market valuation remains affected by political uncertainty and spot oil price volatility – NAV sensitivity to oil price is included within this note.