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 31st 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.