Egdon Resources plc share price, company news, analysis and interviews

Egdon Resources plc (LON:EDR) Managing Director Mark Abbott caught up with DirectorsTalk for an exclusive interview to discuss their quarterly financial update, the approval of the Wressle Field Development Plan, next steps at Wressle and what investors should be looking out for in the coming months.

Q1: Last week, you provided a positive update on third quarter revenues and financial position. Could you just summarise for us and advise what main drivers were that improved the results?

A1: Strong oil and gas production for the three months from February through to April, coupled with very high oil and gas prices has translated into an excellent fiscal performance for Egdon Resources. We had revenues of £2.23 million during that period and that compares very favorably to just over £2.5 million for the previous six-month period.

That improvement has been driven by the continuing high levels of production from our Wressle and Ceres fields, coupled with those high oil and gas prices. Just to put those in context, the average realized price during the period was nearly $107 a barrel of oil and over £2 per therm of gas.

I think importantly, we also highlighted that we’d repaid the £1 million loan facility to Union Jack plc and our balance sheet is significantly improved with this cash flow cash. Cash and cash equivalents at the end of April of £2.73 million, allowing for that loan repayment and net current assets of £2.76 million so that’s up over £1.5 million from the end of January when we reported our interim results.

So, the last year has been transformational for the business, we’re now debt-free and funded for all our near-term commitments and with an expectation of continued strong production and revenue.

Q2: Now, your press release this morning advises that the Field Development Plan has been approved for Wressle, could you just explain the significance of this?

A2: I suppose it’s procedural in a way, but the approval of that Field Development Plan by the North Sea Transition Authority is a key milestone for the field. It provides us with the consent to move from extended well test production to long term production and validates our plans for the field.

The NSTA also approved the Wressle licenses, that’s PEDL180 and PEDL182 entering their production phases so those licenses now go on to 2039 so it removes any uncertainty about the production and the consents behind that.

Wressle is an excellent asset, it continues to generate high levels of production and result in revenues and Wressle-1, we think, is currently amongst the most productive onshore well in the UK, it’s produced over 170,000 barrels of oil to date.

Q3: As you say, Wressle clearly is a key asset but what do you see as the next steps here?

A3: Well, our focus now turns to completing the installation of the few remaining permanent production facilities on the site and also looking to progress the planning, permitting, and implementation of the monetization plan for the gas, which we’re currently having to incinerate. Importantly, as well as providing a further revenue stream, that’ll remove the limitations on oil production, which currently imposed by the environmental permit, which restricts the amount of gas that we can incinerate.

In parallel with that, we’re looking to optimise production from the current reservoir at the Ashover Grit. We’re also advancing the development plan and consenting process to enable us to produce from the Penistone Flags, the shallower reservoir where we see gross mid case contingent resources of 1.5 million barrels of oil and 2 billion cubic feet of gas, which have been independently reported.

So, I think with this further potential, the Wressle field is at the start of its journey and should be a significant asset for Egdon for many years to come.

Q4: What should investors be looking out for from Egdon Resources in the coming period?

A4: I suppose as well as the continuing high levels of production and revenues that we’re experiencing, as I’ve highlighted, we also have a number of other potential value drivers for the coming period.

So, we’re progressing plans to increase production at Keddington through the drilling of a new sidetrack well, which is probably going to be undertaken early in 2023. At Waddock Cross, down in Dorset, shut in oil field, we’re looking to update all of the approvals and consents for potential drilling again in the early part of next year. Both of these could add significantly to our production revenues.

We’re also awaiting the outcome of the planning appeal at Biscathorpe and currently preparing another appeal for North Kelsey. Positive outcomes there could lead to drilling at these sites next year.

The other thing that that’s quite current, and we await with interest, the review by the British Geological Survey in relation to shale gas and the government’s response to that. Any movement on the moratorium on hydraulic fracturing for shale gas could lead to a major rerating of Egdon, we hold a very significant resource base in the Gainsborough Trough which we believe is the premier UK shale gas basin.

We also continue to review a number of opportunities in terms of geothermal energy, energy storage, hydrogen and renewable generation, and expect to make progress here in the coming period.

So, I think there’s plenty of news flow over the coming period and a positive outlook for the business.

Egdon Resources plc (LON:EDR) is the topic of conversation when Edison Research’s Analyst Elaine Reynolds caught up with DirectorsTalk for an exclusive interview.

Q1: Egdon Resources has seen a step change in production and revenues in the second half of 2021. What do you think is behind this?

A1: The step change has been partly due to the large, unexpected production rate seen from the Wressle-1 well. The company carried a proppant squeeze on this well in the second half of 2021 and expected the well to produce around 500 barrels of oil a day following this but it’s been closer to 760-800 barrels of oil a day so exceeding expectations.

If we combine this with the current high commodity prices we’re seeing, this has driven a 500% increase in revenues, going up from £0.42 million in the first half of 2021 to over £2.5 million for the second half of the year.

Q2: What more do you think can we expect from Wressle?

A2: Production is still constrained at Wressle by gas handling equipment so the company is planning to export gas via short tie into the local network which it hopes to have in place by wintertime. This would allow for flows rates of between 1,200-1,500 barrels of oil per day.

There’s also another reservoir at Wressle that’s yet to be produced and the Penistone Flags reservoir is estimated to hold mid-case contingent oil and gas resources of 1.53 million barrels of oil and 2 bcf of gas.

Q3: How do you think the geopolitical situation could impact Egdon Resources’ activities?

A3: I think particularly the situation of European countries trying to move away from Russian gas and an emphasis on domestic energy security could benefit the company.

They hold significant unconventional resources in the north of England and there’s currently a moratorium on activity there because the company would need to use hydraulic fracturing for that. In April, the UK government has asked the British Geological Society to advise on latest evidence for using hydraulic fracturing. If the moratorium on this was to be lifted, it could be transformational for the company, they hold net 37.6 tcf gas in place.

Also, apart from that, in the UK, planning permission process can be quite lengthy and at the moment there’s onshore projects the Biscathorpe side-track and an exploration well in North Kelsey that have had planning permission refused. We still need to see if local councils’ attitude to this will change in light of achieving domestic energy security.

Egdon Resources plc (LON:EDR) Managing Director Mark Abbott caught up with DirectorsTalk for an exclusive interview to discuss half year results, exceeding expectations at Wressle, the government’s review of shale gas, Shell withdrawing from the resolution project and what investors should be looking out for in the coming months.

Q1: Mark, half year results to the 31^st January, they look very positive for the company. Can you just summarise for us what you see as the main points to take from the results?

A1: This has been a transformation for the company financially. Our production more than doubled and our revenues increased fivefold during the period to over £2.5 million and that was obviously driven by strong oil and gas prices.

The company has returned to profit after the challenges of recent years with an overall profit of £1.2 million, which includes a reversal of a prior impairment of £500,000 on our Ceres gas field, which is undergoing a late life renaissance.

I’m suppose, importantly, we’re generating strong free cash and had cash of just over £2 million at the period end and have continued to generate strong revenues since, with February and March revenues of just under £500,000 and £950,000 respectively.

Q2: Now, you say in the report that Wressle has exceeded expectations, can you expand on that for us? Why and what you see as the next steps for Wressle?

A2: Wressle was expected to produce at rate of around 500 barrels of oil per day following the proppant squeeze that we concluded in August of last year. However, the well quickly exceeded this and we’ve seen instantaneous flow rates of over a thousand barrels of oil per day. The well’s currently flowing at constrain rates of 760 to 800 barrels a day, which is limited by our capacity to incinerate the gas. To date, the well has flowed over 150,000 barrels of oil with no formation water seen.

So, it’s generating very strong revenues for the company and when we acquired pressure data back in December of 2021 and analysed this, it showed the well is capable of flowing between 1,200 and 1,500 barrels of oil per day, once we’ve progressed the monetization of the gas and remove that limit on production of oil. That’s key for the coming period.

We’ll also be progressing plans for the development of an additional 1.5 million barrels of oil and 2 billion cubic feet of gas from another reservoir there, the Penistone Flags.

So, Wressle is a key asset and is at the early stages of delivering value for the company and I believe it’s got much more to come there.

Q3: As part of its recent energy review, the government announced a review of shale gas. What is the significance of this to the company?

A3: It’s very significant. We’ve retained a very large shale gas position in Northern England with a particular focus on an area we call the Gainsborough Trough, where we hold 71,000 net acres of land. The Springs Road-1 well, which was drilled a couple of years ago, proved a world-class shale resource in that basin and the basin is characterised by a simple structure and a lack of faulting which should mean it’s less prone to the induced seismicity which triggered the 2019 moratorium.

There are many financial and security supply benefits to the UK, developing its own indigenous resources, including a reduction in the overall greenhouse gas emissions when we compare that to the very large volumes of imported LNG.

So, if this review leads to the unlocking of activity in relation to shale gas exploration and development, this will be truly transformational for Egdon Resources.

Q4: Now, you also announced today that Shell is to withdraw from the resolution project. Why is this and what your plans for the license?

A4: I think the first thing I should say is Shell’s withdrawal in our view is driven by corporate reasons and not because of the quality of the project. The resolutions are 230 billion cubic feet gas discovery, ready for appraisal at a time of high gas prices and renewed government support for indigenous gas in light of the renewed focus on energy security.

So, we’re a little bit at a loss as to the rationale really, but we’re currently reviewing all of our options to continue with the license. We’ll be discussing these with the North Sea Transition Authority and will of course update shareholders once we know more.

Q5: Finally, Mark, what are the main things that investors should look out for from Egdon Resources in the coming period?

A5: I think we can look forward to continued strong production and revenues the rest of this financial year and beyond from Wressle, Ceres and our other fields. Our full year guidance is 240 barrels of oil equivalent per day, second half, 275 to 285 barrels of oil equivalent per day and this means that we’re going to generate revenues, which mean we are fully funded for all of our current plans including the repayment of a £1 million loan in May.

In terms of operations, we’re focused on continuing to optimise production at Wressle, building on the strong performance to date, whilst making progress with the gas monetisation and finalizing the plans for the development of the material contingent resources in the Penistone Flags I mentioned earlier.

Also, progressing plans to target additional oil production at Keddington and to redevelop the field at Waddock Cross to add further to our production and revenues in the coming period. We’re hopeful of securing planning consent through appeals that both Biscathorpe and North Kelsey, which could lead to further drilling in 2023. We also expect to further progress with our energy transition opportunities, including geothermal and energy storage.

So, I think in summary, the last period saw a significant strengthening of the fundamentals of the business and we can look forward to the future with some renewed confidence and expectations.

Egdon Resources plc (LON:EDR) Managing Director Mark Abbott caught up with DirectorsTalk for an exclusive interview to discuss the main points from their results, how the market is developing, opportunities and challenges for the business and the key priorities and outlook for the company.

Egdon Resources is a UK-based independent onshore focused oil and gas exploration and production business. Today, the company announced its results for the year ended 31 July 2021 and joining me to discuss those results is Managing Director Mark Abbott.

Q1: Mark, as mentioned, your results out today, what would you highlight as the main points that we should take from those results?

A1: I think firstly, I should acknowledge that we have successfully navigated a very challenging period with operational and macro-economic impact of COVID and low oil and gas prices, providing significant headwinds for the company.

However, as our results show, we’ve continued to make good progress against our updated strategy and we’ve emerged as a much stronger business.

The highlight for the period is undoubtedly Wressle where we’ve rebuilt the site, installed the production equipment, commenced oil flows and following the delayed approval, have undertaken the proppant squeeze and the associated core tubing operations and they concluded in mid-August. Both of those operations were undertaken safely without any impact on the environmental local community and the results from the well have significantly exceeded our expectations.

We’ve had facilities constraints, instantaneous flow under a restricted choke of up to 884 barrels of oil and just under half a million cubic feet of gas a day and that’s already making a significant contribution to our cash flow and will continue to do so in the coming period.

Importantly, we’ve also significantly strengthened the group’s finances during the period through care cost management, recapitalisation via the introduction of convertible debt and the issue of new equity.

Although our production was down by nearly 40%, due largely to expected depletion of Ceres field, we’ve increased our revenues by over 13% reflecting the improving commodity prices that we’re seeing throughout the period. Although we’re not yet profitable, we reduced our losses to £1.68 million from £4.75 million in the previous year, showing a clear direction of travel as we look forward to significant revenues from Wressle in the coming period.

Q2: All very positive and also very positive is the strong recovery in oil and gas prices over the past year. How do you see the market developing and how will this impact on the business?

A2: All indications are that we’ll see continuing strong oil prices in the coming period and we’re seeing increasing demand driven by a growth in economic activity and that’s been combined with a lack of investment in the new production over recent years. So, this should have a positive impact on our revenues at a time when Wressle is expected to be producing very significant volumes of oil.

In relation to gas, we’ve seen historically high gas prices, again driven by worldwide demand recovering, supply issues and competition for LNG. Whilst not at the levels we’ve seen in recent months, we do see an expectation of overall strong gas prices persisting for some time to come. This will have a very positive impact on our production from Ceres which has currently highly economic and where it could lead to the field life being extended.

In summary, I think the current forward oil and gas price expectations are highly positive for the company.

Q3: With COP26 underway and a focus on energy transition, what opportunities and challenges do you see for the business going forward?

A3: The UK is committed by law to reach zero emissions by 2050 and that’s been brought sharply into focus at the moment with the wall-to-wall coverage of COP26.

I think there’s a popular narrative around this which tends to be the demonisation of oil and gas, however it is an uncomfortable truth, but in the period up to and beyond 2050 there will be a continuing need for oil and gas.

In addition to their energy uses, oil and gas are important feedstocks used in the manufacturing of everything from medicines to wind turbines and I think importantly, indigenous UK produced oil and gas, which is highly regulated, has a much lower precombustion emissions level than many sources of imported oil and gas. If we look at gas, for example, 75% less than imports.

So, without the continuing production of indigenous oil and gas, the UK will simple offshore its emissions, employments and physical benefits.

Notwithstanding this, and as we’ve seen with the rejection of planning for Biscathorpe this week, there are increasing challenges to getting consent for activities and we often need to go through the appeal process such as we did for Wressle and are likely to do so with Biscathorpe.

Turning to the opportunities, we are focussed on energy transition opportunities during the last period which utilised the company’s core skills, knowledge and operating experience and these include geothermal energy, hydrogen production and energy storage.

We’re already beginning to develop our geothermal heat opportunities initially working with a group called Creative Geothermal Solutions Limited on repurposing our well at Dukes Wood-1 and I think that will be the first operation in the UK going ahead in 2021, subject to receipt of all the necessary consents. We’re beginning to look more widely at geothermal opportunities both for heat and power generation and expect to make some good progress here and the other strands as part of our strategy in the coming period.

Q4: Just looking forward, what are the key priorities and how do you see the outlook for Egdon Resources over the coming year?

A4: We’ll also be progressing the monetisation of the associated gas production at the site, that’ll add a further revenue stream and we’ll be looking to develop our plans to bringing the Penistone Flags reservoir, where significant additional oil and gas are present, into production in due course.

We’ll be looking to finalise our plans for incremental oil production at our Keddington oil field and the potential redevelopment of the Waddock Cross oil field, both of which have planning and can be done in 2022. We’ve spoke about Dukes Wood and our plans for repurposing that well, that’ll be an important first step for the company in the nascent business area.

In terms of outlook, we have initial guidance of 240 barrels of oil equivalent of oil per day for the current period and that will be subject to review, most likely upwards once we’ve completed the work at Wressle.

With a step change in cash flows we expect from Wressle, and indeed Ceres, during the coming period, in a significantly improved oil and gas price environment and with the breadth in quality of the opportunities that I’ve highlighted here, I think we can look forward with some confidence.