Egdon Resources “current forward oil and gas price expectations are highly positive for the company” (LON:EDR)

Egdon Resources

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.

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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.

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