Egdon Resources plc (LON:EDR), an established UK focused energy company, today announced its unaudited results for the six months ended 31 January 2023.
Overview and Highlights
Operational and Corporate
· Production for the Period was up by 27% to 46,465 barrels of oil equivalent (“boe”) equating to a rate of 253 boe per day (“boepd”), ahead of guidance of 225-245 boepd (H1 2022: 36,714 boe and 200 boepd)
· The Wressle oil field continued to be the standout asset for Egdon, producing at an average rate of 689 barrels of oil per day (“bopd”) during the Period. Total field production from Wressle to 31 January 2023 stood at 357,838 barrels of oil with no water production.
· The North Kelsey Planning appeal documentation was submitted on 8 August 2022. This will be heard via a Public Hearing on 14 June 2023
· During 2022, the moratorium on hydraulic fracturing for shale gas was lifted (8 September 2022) and then reinstated (27 October 2022)
· A hearing was held on 11 October 2022 in relation to the Biscathorpe planning appeal and we continue to await the Planning Inspector’s decision
· Licence P2304 was relinquished as planned in November 2022
· In December 2022 Egdon announced the acquisition of Aurora Production (UK) Limited, a private company with interests in PL090 (Waddock Cross) and PEDL070 (Avington). The effective date of the transaction is 30 September 2022 and the consideration is the grant of a Net Profit Interest capped at the cash balance of £0.288 million which provides for outstanding abandonment liabilities. This transaction completed post period end on 1 March 2023.
Financial Performance
· Unaudited revenue for the Interim Period was up 46% to £3.725 million (H1 2022: £2.551 million)
· Earnings before interest, tax, depreciation, amortisation, asset impairments, impairment reversals and write-downs were £2.105 million (H1 2022: £1.410 million).
· Overall profit for the Period after a tax charge of £0.741 million (H1 2022: £Nil) was £0.435 million (H1 2022: £1.222 million)
· As at 31 January 2023, the Company had cash and cash equivalents of £5.524 million (H1 2022: £2.084 million) and net current assets of £6.593 million (H1 2022: £1.165 million, which includes debt of £1.007 million and £0.417 million deferred consideration for Wressle)
· The Company had no borrowings as at 31 January 2023 (H1 2022: £1.007 million)
Subsequent Events
· On 6 February 2023 Egdon entered into a Farmout Option Agreement with York Energy (UK) Holdings Limited relating to Licence PL081 in North Yorkshire. Under the terms of the Agreement, Egdon has a period of six months from 3 February 2023 to elect to farm into the Licence which contains the Weaverthorpe Prospect. Egdon’s initial evaluation indicates an estimated Mean prospective gas resource of 58 billion cubic feet.
· On 1 March 2023 Egdon completed the acquisition of Aurora Production (UK) Limited which has subsequently been renamed Egdon Resources (Aurora) Limited. The effective date of this transaction is 30 September 2022.
· On 19 April 2023 Egdon relinquished P1929 which contained the Resolution gas discovery and which was fully impaired in the 31 July 2022 accounts.
Outlook
· Post-Period end production and revenues have continued to be strong, despite reduced commodity prices, with February and March unaudited revenues of £0.632 million and £0.521 million respectively.
· Production guidance for the full financial year is increased to 240-250 boepd, up from 225-245 boepd.
The key operational focus for the remainder of 2023 will be:
· Maintaining and enhancing the impressive production performance at Wressle whilst progressing both the gas monetisation and further development drilling as priorities.
· To add reserves, production and revenues through the drill-bit across our exploration and development/re-development projects.
· To progress the Company’s energy transition strategy through geothermal, energy storage, hydrogen and renewable generation projects.
Commenting on the results, Philip Stephens, Chairman of Egdon Resources said;
“This has been another period of impressive operational and financial performance for the Company. Egdon’s flagship asset, Wressle, continues to perform strongly, generating positive cash flow and with plans being progressed for its further development.
We were pleased to further enhance the business through the acquisition of Aurora and the addition of an option on a material gas prospect at Weaverthorpe.
The outlook for the remainder of the year looks positive with expected continued strong revenue generation from Wressle alongside numerous value catalysts in the planned work programme.
We look forward to updating on progress through the second half of the year.”
Chairman’s Statement
I am pleased to report on the results for the six months ended 31 January 2023 and provide an update on developments within the business.
Notwithstanding the impact of the increase in the Energy Profits Levy to 35% implemented in November 2022, the Period has seen the continued positive impact from Wressle combined with strong oil and gas prices which has translated into a continued strengthening of the Company’s financial position.
Strategy
The Company’s strategy takes account the challenges and opportunities presented by the UK’s move to Net Zero carbon emissions by 2050 and the UK Government’s Energy Security Strategy. This, taken together with the wider economic, political and operating environment has seen a renewed focus on securing indigenous energy supplies.
Our strategy was updated during 2022 to reflect these realities as follows:
1. Maintain geographical focus on the UK
2. Focus on growth in production and revenue through conventional production, appraisal and exploration projects
3. Develop energy storage, hydrogen and renewable energy projects utilising Egdon’s reputation, existing assets, knowledge of the UK’s onshore geology and core technical skills and operating experience
4. Maintain our significant portfolio of shale-gas assets
Financial and Statutory Information
The Period has seen a significant strengthening of the financial position of the Company, driven by a 46% increase in oil and gas revenues during the Period to £3.725 million (H1 2022: £2.551 million) as a result of increased production and continuing strong commodity prices. The average realised price per barrel of oil equivalent was 5.6% higher at $83.77/boe (H1 2022: $79.32/boe).
The overall profit for the Period was £0.435 million (H1 2022: £1.222 million including £0.507 million of write-backs in relation to Ceres). This was after a tax charge for the Period of £0.741 million (H1 2022: £Nil), which includes Energy Profits Levy of £0.458 million (H1 2022: £Nil) and reversal of a deferred tax asset of £0.145 million (H1 2022: £Nil). The planned programme of capital works in 2023 and 2024 will result in an investment allowance and enable recovery of part of this tax as a result of carry back arrangements.
Cash and cash equivalents as at 31 January 2023 were £5.524 million (H1 2022: £2.084 million and at 31 July 2022: £4.800 million) and Net current assets stood at £6.593 million (H1 2022: net current asset of £1.165 million, which included debt of £1.007 million convertible loan and £0.417 million deferred consideration for Wressle). As at 31 January 2023, the Company had no borrowings (H1 2022: £1.007 million).
The Group had net assets at 31 January 2023 of £32.150 million (H1 2022: £28.641 million).
There were no fund-raising activities during the Period (H1 2022: £Nil). A total of 18,441,000 warrants were exercised during the Period resulting in cash of £0.461 million being introduced to the Company (H1 2022: £Nil). As at 31 January 2023 a total of 30,708,000 warrants remained outstanding (H1 2022: 57,614,000)
Post-period end production and revenues have continued to be strong, despite reducing commodity prices, with February and March revenues of £0.632 million and £0.521 million respectively
Environment and Social Governance, Climate and Emissions
Egdon aims to build value through developing sustainable long-term relationships with partners and the community and is committed to the highest standards of health, safety and environmental protection. The Company is committed to its operations being Net Zero by 2050. Egdon has established a Climate Change Policy and the Board is committed to reducing the emissions from our operations and to monitoring and reporting performance in this area.
Acquisition of Aurora Production (UK) Limited
During the Period, Egdon reached agreement to acquire Aurora Production (UK) Limited (“Aurora”) from Aurora Petroleum Limited (the “Vendor”). Aurora holds an 18.75% interest in PL090 which contains the Waddock Cross oil field and an 8.33% interest in PEDL070 which contains the Avington oil field. Egdon estimates that the transaction covering both licences will add approximately 0.614 million barrels of Best Estimate Contingent and Prospective Resources of oil to its resource inventory. Aurora has accumulated upstream ring-fenced tax losses of ca. £90 million that should be available to offset tax on Egdon’s future profits or which could be vended to a third party.
The consideration was the grant of a Net Profit Interest to the Vendor of 10% on each of the licence interests which will result in the Vendor being reimbursed a sum of up to £0.288 million from future production. At completion cash balances of £0.288 million were retained in Aurora, reflecting the current estimate of Aurora’s abandonment liabilities. The acquisition which had an effective date of 30 September 2022, completed on 1 March 2023 and the company has since been renamed Egdon Resources (Aurora) Limited.
Oil and Gas
Egdon holds interests in 34 licences in the UK (2022: 36 licences) with exposure to the full cycle of opportunities from exploration through to development and production. Egdon’s website (www.egdon-resources.com) provides further details of the Company’s assets and operations.
Highlighted below are key changes to our licence portfolio during the Period and post-Period end.
| Licence | Changes |
| PL090 | Increased to 73.75% through the acquisition of Aurora Production (UK) Limited |
| PEDL070 | Increased to 36.33% through the acquisition of Aurora Production (UK) Limited |
| P2304 | Relinquished in October 2022 |
| P1929 | Relinquished in April 2023 |
Production
Production during the Period was 253 boepd (H1 2022: 200 boepd), primarily from Wressle and Ceres as well as a contribution from Keddington which was off-line during January 2023 due to wax issues.
The standout asset for Egdon continues to be Wressle (Egdon 30%). Cumulative oil production to 31 January 2023 was 357,838 barrels and production exceeded 400,000 barrels on 28 March 2023 with no production water seen to date. Production during the Period averaged 689 bopd. Three microturbines were connected during January and February and have been fully operational since late February. So far, these have resulted in a c. 10% increase in oil production when compared to that possible without the turbines being operational and further optimisation is ongoing. Production rates averaged 770 bopd during March 2023.
The commissioning of the micro-turbines was the first step in the gas utilisation scheme. The second stage will be the installation of a separate gas engine to generate and export electricity into a local private power network. Detailed feasibility work has confirmed that the local network can accept c.1.4 MW of electricity and suitable used gas engines are currently being assessed due to the long lead times for new units.
During the Period Egdon has completed reprocessing of the 3D seismic data and finalised a new seismic interpretation and mapping exercise across the Wressle field. This has highlighted a potentially significant increase in resources from the Ashover Grit at Wressle and a new Competent Person’s Report has been commissioned to consider all oil and gas bearing formations at Wressle and incorporating the new field interpretation and production performance data. This new technical report will inform the optimal development of the Ashover Grit and Penistone Flags reservoirs and we look forward to providing more details of the forward plan once this work is complete. Planning and permitting work is currently ongoing for a new well or wells from the existing Wressle site. The intention will be to drill at the earliest opportunity, subject to receipt of regulatory approval. Stage two of the gas monetisation which will focus on gas export will also be included in the planning application.
The Wressle Community Fund has been operating since early 2022. In August 2022, operation of the fund was transferred to Broughton Community and Sports Association which will run the fund to meet the needs of local charities and community groups. The Wressle JV is making £100,000 a year available to the fund.
The Ceres gas field (Egdon 10%) continues to contribute material revenues and cash flow. We currently expect production to continue through to at least the end of 2024 with the gas price eventually dictating the end of production.
Keddington (Egdon 45%) continued to contribute tangible revenues. A viable drilling location in the east of the field has been identified targeting around 180,000 barrels of incremental production. Planning is in place for this and the well is likely to be drilled during H2 2023.
Fiskerton Airfield (Egdon 80%) has remained shut-in during the Period. There remains the potential for the site to be used to manage any produced water from other Egdon sites through the existing water injection well.
Other key near-term projects identified to increase production and revenue include Waddock Cross (Egdon 73.75%), where Egdon’s interest has increased with the acquisition of Aurora Production (UK) Limited. Independent reservoir modelling has shown that a new horizontal well on the field could yield commercial oil production (500-800 bopd). Given the significant mean in-place oil volume of c. 57 million barrels, this asset has been high graded by Egdon for redevelopment. Egdon is actively progressing planning and permitting to secure consents for drilling with a target of H1 2024.
At the Avington oil field (Egdon 36.33% following Aurora acquisition), the operator, IGas, has discharged all planning conditions and has now commenced operations with an expected restart of production during Q2 2023.
At the Kirkleatham gas field (Egdon 68%), we are in advanced discussions regarding the potential farm-out of a geophysical programme and a side-track well and remain hopeful of concluding a deal in the near future. A planning application is in preparation to extend the existing consents for the site.
Exploration/Appraisal
Biscathorpe (Egdon 35.8%) and North Kelsey (Egdon 50%) are volumetrically significant prospects with each having gross Mean Prospective Resources of around 6.5 million barrels. Drilling is dependent upon the outcome of the planning appeals, but with a positive outcome drilling would be expected in H1 2024.
A planning hearing was held for Biscathorpe on 11 October 2022 and we await the decision from the planning inspectorate. The appeal documentation for North Kelsey was submitted on 8 August 2022 and a planning hearing is due to be held on 14 June 2023 with a decision expected during July 2023.
Post-Period end, Egdon entered into a Farmout Option Agreement with York Energy (UK) Holdings Limited relating to Licence PL081 in North Yorkshire. Under the terms of the Agreement Egdon has a period of six months from 3 February 2023 to elect to farm into the Licence which contains the Weaverthorpe Prospect. Weaverthorpe is a shallow Sherwood Sandstone (Triassic) prospect located immediately up-dip of interpreted gas pay in the Fordon-2 well (drilled by BP in 1974). Egdon’s initial evaluation indicates an estimated Mean prospective gas resource of 58 billion cubic feet.
During the option period Egdon will undertake additional technical and operational work to de-risk the opportunity, including reprocessing of the vintage 2D seismic data and integration of this with the existing 3D seismic data which defines the western part of the prospect. Should Egdon exercise the Option, the Company will earn a 70% interest in the Licence and assume operatorship in return for paying 100% of the costs associated with the planning, drilling, logging, and either short term testing and completion or plugging and abandonment of a well to test the Weaverthorpe Prospect.
During April 2023, Egdon relinquished the P1929 licence in line with our previously advised expectation, as we had not been able to acquire the 3D seismic programme in the narrow acquisition window, following Shell’s withdrawal and the NSTA were not minded to grant any further extension to the licence obligations.
Shale-gas
The Group’s unconventional resources acreage holding in Northern England is 151,742 net acres (614km2 net), which is a significant strategic position with estimated Mean volumes of undiscovered Gas in place of 37.6 trillion cubic feet of gas net to Egdon, independently assessed by ERCE (2019). Egdon’s core area is the Gainsborough Trough of Nottinghamshire, Lincolnshire and Yorkshire where the Group holds interests in 71,361 net acres (289km2 net) and where results from the 2019 Springs Road-1 well (Egdon 14.5%), compare favourably with some of the best US commercial shale-gas operations and highlight a potentially world class resource in the Gainsborough Shale. Activity remains paused following the lifting and then reintroduction of the moratorium on hydraulic fracturing for shale-gas. We will continue to make the scientific, environmental and commercial case that shale-gas should be part of the long-term solution to the UK’s energy needs and that this can be done in a safe and environmentally sustainable manner. However, despite the clear need for indigenous sources of gas we see little political support at the present time.
Energy Storage, Hydrogen and Renewables including Geothermal
In relation to geothermal energy, a programme to plug and abandon the existing Dukes Wood-1 oil well and recomplete it for geothermal testing has been approved by the NSTA. It is anticipated the proof of concept workover and testing of Dukes Wood-1 will now form part of a larger programme of work, due to commence during H2 2023.
Egdon is also making good progress on a potentially material renewable energy, green hydrogen and energy storage project and hopes to be able to announce further details later in 2023.
Outlook
Production guidance for the full financial year 2022-23 is increased to 240-250 boepd from 225-245 boepd.
Operationally, our priorities for the coming year are three-fold. Firstly, a focus on maintaining and enhancing the strong production performance at Wressle whilst progressing also both the gas monetisation and the further field development. Secondly, looking to add reserves, production and revenues through a planned drilling programme across Egdon’s key exploration and development/redevelopment projects. Thirdly, progressing our nascent geothermal, energy storage, hydrogen and renewable generation opportunities during the coming Period.
The Company is in a secure financial position and the Board is making progress in appointing my successor as Chairman. With continuing strong cash flow and the quality of our near-term exploration, appraisal and development opportunities, we can look forward with optimism.
Philip Stephens
Chairman
24 April 2023
