VSA Capital Market Movers – Egdon Resources

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Egdon Resources#: Full Year Results

Financial 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.

Funding Update

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 protected]

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