Post the fund-raise, Egdon has zero debt and cash of c £7.0m, making it the largest unlevered UK-listed shale play. Licences span over 200,000 net acres with an ERCE estimated undiscovered gas initially in place (GIIP Pmean) of 48tcf. Our valuation is adjusted for placing proceeds and associated NAV/share dilution; this is offset by inclusion of 14th round licence awards. Our valuation is broken down in to 3.7p/share for core 2P value (including cash and net of G&A) and 18.5p/share for contingent resource and risked exploration. We also include an indicative dollars per acre shale valuation of 25.7p/share.
Egdon has raised £5.06m (gross) through a £3m placing with shareholder HEYCO International and just over £2m via an open offer, both priced at 13.5p/share. The proceeds are to be used to progress the Wressle oil field through to management expected first oil in H117. They will also be used to progress 14th round licence awards and the ‘A’ prospect to drillable status.
The development of Wressle will provide Egdon with a step change in production, albeit from relatively low levels. We currently forecast FY17 production of 165boepd, in-line with management guidance and predicated on Wressle first oil in Q217. We forecast an increase to 233kboed in FY18 with potential for Egdon to generate £2.2m of cash from operations (based on our FY18 63$/bbl Brent forecast). Upcoming exploration and appraisal includes the ‘A’ prospect (contingent on farm-out); Holmwood-1, which is expected to be drilled in 2017 (fully carried); and North Kelsey and Biscathorpe, which are expected in H117 (both contingent on farm-out).
Our updated valuation for Egdon incorporates fund-raise proceeds and the notional value for the 14th round UK shale licence awards on a dollars per acre basis. The net result is broadly neutral, with our conventional RENAV standing at 22.3p/share. However, we see a material increase in the unconventional valuation, which now includes a dollars per acre value for 14th round licence awards. This moves from 22p/share to 25.7p/share (+16.8%).