Egdon Resources#: Full Year Results
Egdon Resources (LON:EDR) has reported full year results which demonstrate that last year was challenging for junior oil and gas companies. Average annual production of 145boepd was ahead of guidance although lower commodity prices led to a 56% decrease in revenue to £1.0m. O&G accounting is highly sensitive to changes in the oil price and EDR was forced to take impairments of £2.8m. Consequently, the gross loss of £4.7m appears weak, however, we note that net cash used in operations was just £200k.
Lower commodity prices, notably gas persisted into H1 FY 2021 and expected production declines at Ceres mean that the period is one of transition. This was clearly more challenging than expected and late in 2020 EDR agreed a secured loan facility of £1m charging 11%pa; this has been topped up by an unsecured convertible loan note of £1.05m charging 8%pa. The latter is convertible at 1.55p/sh. and the lender is a concert party led by EDR’s major shareholder.
Milestones for FY 2021
The additional funding supports EDR just as Wressle is due to come online. Although guidance implies flat production YoY at 140-150boepd, the H2 average is targeted at 200boepd highlighting Wressle’s benefit. First production is expected later this month. Wildlife, fishing and tourism surveys showed that the seismic due to be shot in March / April at Resolution, where EDR is partnered with Shell, should be done in February. This means delaying until February 2022, however, we highlight that Shell’s North Sea strategy remains important as domestically produced gas has a lower carbon footprint than imports. Natural gas will remain crucial to the UK energy mix during the energy transition and the asset is a highly attractive part of EDR’s portfolio. EDR will focus near term efforts on an application submission and farm out at Biscathorpe to enable drilling of a sidetrack well to realise the value demonstrated by the studies released last year.
Recommendation and Target Price
With production due to increase and a stronger funding cushion, the company is well placed to bounce back and continue to develop its attractive portfolio. We reiterate our Buy recommendation although adjust our target price to 22.5p.
Oliver O’Donnell, CFA, Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: email@example.com
VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com
This email is intended solely for the named recipient. It may contain privileged and/or confidential information. If you are not one of the intended recipients, please notify the sender immediately, and destroy this email: any disclosure, copying to any person or any action taken or omitted to be taken in reliance on this e-mail, is prohibited and may be unlawful. Any views expressed in this message are those of the individual sender, except where specifically stated to be the view of VSA Capital Limited, its subsidiaries or associates. Whilst all efforts are made to safeguard inbound and outbound emails, VSA Capital Limited and its subsidiaries or associates cannot guarantee that attachments are virus-free or compatible with your systems and do not accept any liability in respect of viruses or computer problems experienced.
VSA Capital Limited will use your personal information to administer your account in order to provide any products and services you have requested from us. Your personal information will be kept secure and will not be shared with any other party unless you provide consent to that effect.
VSA Capital Limited is Authorised and Regulated by the Financial Conduct Authority and is a member of the London Stock Exchange.
The Company is registered in England with company number 2405923 at New Liverpool House, 15-17 Eldon Street, London EC2M 7LD.
Please consider the environment before printing this e-mail
unsubscribe from this list update subscription preferences