Egdon Resources PLC

LSE:EDR

Earnings Call Transcript 2022-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the Egdon Resources plc Investor Presentation. [Operator Instructions].

I'd now like to hand you over to Managing Director, Mark Abbott. Good morning, sir.

[Mark Anthony Abbott, executive]

Good morning, and good morning, everybody. Thanks for taking the time to join us this morning. So yes, today, we're reporting our preliminary results for the year ended 31st of July 2022 and provided a bit of a business update across the entire portfolio.

You'll notice that we've rebranded the company and with logo and new field for company sort of expressing our vision, which is to provide locally derived secure and affordable sustainable energy to meet the U.K.'s evolving energy needs.

Egdon is largely focused onshore in the U.K. We're a well-established business listed on AIM, as you'll all be aware. We currently have 36 licenses. And this year, we've seen a step-change in our oil and gas production and revenues. And I hope as I'll be able to point out in the presentation, we've got multiple growth catalysts in the coming period. We're also with an eye to the future, developing energy storage, hydrogen and renewable energy opportunities.

Our strategy is largely the same. We're looking to maintain our geographical focus on the U.K. We're looking at a near-term focus on growth in production and revenues in our conventional oil and gas assets. And we're looking to maintain our significant portfolio of shale gas assets, notwithstanding the recent chaos around the lifting and the reintroduction of the moratorium. And as I say, looking at energy transition opportunities to drive longer-term growth as well.

So turning to the year to the 31st of July and looking at the operational corporate highlights. Production has increased substantially by 160%. We're reporting 233 BOE per day for the period compared to 90 BOE for last year. Wressle was a standout asset for us, significantly exceeding our forecast average production over the entire period of 656 barrels of oil per day, and that's constrained by the limits put on the incineration of gas on site. And importantly, we've seen zero water to date as well.

As well as Wressle, the Ceres gas field is providing life renaissance and generating good revenues for the business. We've had a little bit more of an issue with planning. So our Biscathorpe project was refused back in November of last year, we submitted an appeal in April. And that was heard as I'll go on to say at a hearing in early November -- sorry, early October. And again, we've appealed against the March refusal for the North Kelsey exploration, where we were looking for a year's extension to drill that well, and we're still waiting on the process there.

Back in July, the BGS delivered a report to the government with the scientific evidence around shale gas. And as you'll be aware, that led to the lifting of the moratorium in October. I suppose looking closer to home in terms of our existing assets in April, Shell advised of their intention to withdraw from the line of P1929 and P2304, which contain the resolution and Endeavour gas discoveries. And I suppose looking at a slight growth area close to those, we assumed operatorship and increased our equity in PEDL343, which contains the Cloughton tight gas discovery.

I think importantly if we look at the financial performance of the business over the last year, it has really seen a step change in the company. The revenues increased by over 530% to GBP 6.9 million compared to just over GBP 1 million in the prior 12 months. Our earnings, our EBITDA was GBP 4.67 million compared to a loss of GBP 120,000 a year before. And when we rolled in impairments, write-backs, tax, et cetera, we're looking at an overall post-tax profit of GBP 3.3 million compared to a loss of GBP 1.7 million the year before. So a real turnaround in the financial performance of the business. And I think if you look at that last piece there, production revenues continued to be strong for the first quarter of this current financial year at over GBP 2 million. That's translated into basic profit per share of just over 0.5p. And I suppose importantly for looking forward in terms of how we're looking to develop the business, cash and cash equivalents of GBP 4.8 million and net current assets of just under GBP 4.3 million reported. And I suppose importantly as well, repaying all of our borrowings, so we have no borrowings as a company. So I think overall the financial performance for the last financial year was really excellent, and we can look forward to hopefully replicating that in the coming 12 months.

So August, September, October, have been quite busy. The appeal for North Kelsey was submitted in early August. We saw in early September, the government lifting the moratorium on hydraulic fracturing for shale gas. Unfortunately we then saw on the 27th of October, just over a month later, that being reintroduced by the Rishi Sunak government when they came in. And I'll say a little bit more about that as we go through the presentation.

In October, we got some positive news on resolution. The NSTA had finally consented to a request for a 12-month extension to the obligation to acquire the 3D on the site on that license. However, that's quite a challenge now. And so we have taken the presumption that we'll need to impair P1929 and P2304. And as I said earlier, on the 11th of October, we had a hearing for the Biscathorpe planning appeal, and we're awaiting the inspector's decision on that.

So moving through to production. Up 160%, driven by -- largely by Wressle, commodity price was up 144%. You see there, production from Wressle, Ceres, a little bit from Keddington and little bit from Fiskerton. So the realized price is one of the things that's clearly been driving that, $81.3 per BOE. And actually, the exchange rate has also been assisting us in terms of our revenues in pounds.

Our priorities for the coming period are to progress the gas monetization at Wressle and development of the Penistone Flags resources and also to target incremental production at Keddington, Waddock Cross, Avington and Kirkleatham. So our guide for the next 12 months is around 225 to 245 BOEPD.

Turning to specific assets. Wressle has continued to exceed our expectations. Outstanding production and financial performance during the period, more than 225,000 barrels produced at the 31st of July with no water. We progressively upgraded facilities during the period. And we're in the process of a two stage gas monetization process -- program. Stage 1 will be for the Ashover Grit with all consents in place. Firstly, we're installing micro turbines by the end of the year for site electrical requirements. And then a local private electricity network, we're looking at exporting up to 1.75 megawatts into that local grid.

Stage 2 of the gas monetization will accompany the development of the Penistone Flags where as well as being able to export electricity, we'll also look to export gas to the grid as part of that development plan.

We are currently finalizing the reprocessing of the 3D seismic data, and that will inform the location of the Penistone Flags development wells. And that's important to us because we see contingent resources there of 1.53 million barrels and 2 billion cubic feet of gas. Given the performance of Wressle, we will be commissioning a new CPR once all of the information is available from that 3D seismic and the forward plan for the Penistone. And drilling will be progressed at the earliest opportunity, obviously, subject to the required regulatory and planning consents.

Just a couple of photographs there. You see that the production side. We see Wressle as being a really important site for us. We look at it as an exemplar site. So the guys on site there who operate it for us are highly motivated. It's -- you can eat your food off the floor there, it is kept spotlessly clean so that we can demonstrate that you can do onshore oil and gas development in a very, very environmentally friendly and consciously beneficial way. And then there's a picture there of us visiting the site just to make sure that we all understand the realities of what's happening there.

As I say, Ceres, which is in the Southern Gas Basin ties into the Easington terminal, it has been undergoing a late life or a nascence. We have reassessed the field economics that led to a reversal of a prior impairment of just over GBP 0.5 million. And we now expect production to continue through to at least 2024. So we're looking to continue to generate good revenues with the high gas prices that we're seeing, both now and in the forward curve.

At Keddington, we're looking to boost production there. It's continuing to contribute tangible revenues. But clearly, it's a late-life field in the sense of the current producing well. So we're looking to target an area in the east of the field could deliver about 180,000 barrels of incremental production, and that's planned for 2023 with consent already in place. We're just finalizing again there, some reprocessing of the existing 3D to finalize the final location. And there are other near-field exploration opportunities at Keddington South and Louth, which could prolong the life of that site beyond just the Keddington field.

Down in Dorset at Waddock Cross, we see this as being right for redevelopment. It's a shut-in Bridport sandstone oil field, about 57 million barrels of oil in place there, and a new horizontal well could produce up to 1 million barrels with 500 to 800 barrels of oil per day. So we see that the redevelopment has been both technically and economically viable, but it's not core to our JV partner. So we're looking at solutions to take this forward independent of our JV partners. And we continue to work on the planning and permitting ahead of potentially drilling out in 2023.

Moving on to exploration and appraisal. Our activity in 2023 is largely conditional on the outcome of the ongoing planning appeals at Biscathorpe and North Kelsey. There are 2 priority projects in terms of drilling for 2023. And as I say, we had that meeting for Biscathorpe on 11th of October, and we're waiting on the date -- the process and the likely timing of North Kelsey.

I spoke about assuming the interest in Cloughton and we'll be looking to progress our understanding of that gas discovery, which flowed from a number of reservoirs, which was tested back in 1984. And our priorities in terms of exploration for the coming period are securing planning consent for Biscathorpe and North Kelsey and then looking to progress the drilling of those and resolving the forward plan for P1929 resolution.

So just to summarize Biscathorpe and North Kelsey, we're looking at targeting around 6.5 million barrels in both of those prospects. And so material in terms of the sort of resource we're looking to target. We see North Kelsey as an analog to Wressle, being a long trend there. And with planning in place, we'll be looking to drill those in 2023. Resolution is a bit of a complicated one in the sense of Shell looking to withdraw back in April. But we submitted a proposal to the NSTA to acquire the 3D and take over operatorship initially. They weren't inclined to accept that. And so we've been working on various submissions. And finally, in October, they have provided us with a period of an extension to April of next year. But that's highly challenging given the complexities of acquiring the survey there. So unless we're able to negotiate term there, then it will determine in May 2023, which is the reason we've impaired that by GBP 1.8 million as part of these results.

However, interestingly, Shell's assessment of the resolution concluded that it had around half a Tcf of gas, which is more than double the CPR that was independently produced back in 2019. So we feel that resolution has the potential to make a material contribution to the U.K.'s future gas supply and we'll be pushing that case with the NSTA in the coming months.

Moving on to shale gas. Our view and the view of the industry and a number of commentators is that U.K. shale gas can be a strategically important national resource. It has the potential to reduce our growing reliance on gas imports, impacting gas prices. Clearly, it will improve our balance of payments, increases tax revenues, create skilled jobs and importantly, also reduces the carbon footprint of the gas we all use. So we feel it's a compelling case for it. And that was recognized by Jacob Rees Mogg on the 22nd of September when he lifted the moratorium. And we're all very pleased to be dusting off our plans and looking to accelerate activity.

Fortunately, that was reversed by the incoming Sunak administration just a month later on the 27th of October. So I mean, I think without shale, U.K. is going to offshore it's emissions, employment and fiscal benefits. And we'll be at the mercy of the international energy markets locked into reliance on LNG imported from Qatar and ironically, the shale gas fields of the U.S.A. and elsewhere. So we'll continue to make the scientific environmental and commercial case that we can do this safely in an environmentally sustainable way.

Why do we continue to do that is because in the Gainsborough Trough where the bulk of our acreage is, we feel we've identified a world-class resource. Within our overall portfolio, we've got over 152,000 net acres, undiscovered gas in place of around 37 TCF of gas. So even a small proportion of that could make a significant contribution to the U.K.'s gas demand.

Springs Road confirmed a world-class resource, gas in place of around 640 billion cubic feet per square mile. And it's a simple base and one that we think seismicity wouldn't be as much of an issue as it has been to date in the U.K. So that's why we're going to be looking to maintain our licenses and push forward the case that this should be done.

Moving away from oil and gas and looking at energy transition opportunities. Our initial focus here is on opportunities which utilize our core knowledge and operating experience. We recognize the potential to repurpose our field with an initial focus on geothermal. And we're working with a third party created Geothermal Solutions Limited on these opportunities. At Dukes Wood, we've identified an anomalously high geothermal gradient i.e., the grounds hotter at a shallower depth. And we've got the regulatory approval for a program to plug and abandon the existing oil well and recomplete it for geothermal test program. It will be a proof of concept for that type of recompletion. And we're looking to commence that during 2023 as part of a wider program of work to ensure that we do that in a cost-effective and efficient manner. We're also, as a company, reviewing a number of stand-alone opportunities for geothermal energy storage, hydrogen and renewable generation and hope to report some progress on that in the coming periods. And importantly, they've all been selected to contribute tangible long-term value to the company.

In terms of our ESG, we have introduced a climate change policy, commits the company to be net zero by 2050 and at least a 25% reduction in emissions by 2035. And we'll start to monitor and report that performance in this key area. We're fully compliant with all of our environmental permits and planning consents. I suppose importantly, we wish to be a good neighbor. So we want to develop through sustainable long-term relationships with partners and community and maintain the really high standards of health, safety, environmental management protection and performance that we have to date and are rightly, I think, proud of our track record in that area.

So looking ahead, revenues, as I said, remained strong for the first quarter of this financial year at GBP 2 million, production guidance of 225 to 245 BOEPD for the next year. We're fully funded for the 2023 work program. Our key operational priorities are to maintain that strong production at Wressle, whilst progressing the gas monetization and the Penistone Flags development to add further value there. And to add value through the drill bit with development and redevelopment and exploration projects that I've highlighted above and to progress those energy transition projects. We'll continue to make the case that shale gas should be part of the long-term solution to the U.K.'s energy needs and do that in a positive manner.

Just as a sort of housekeeping matter in terms of the Board, our Chairman, Philip Stephens has advised of his intention to retire from the Board. And we started that recruitment process to appoint a successor, expects to put somebody in place there in the early -- in the first quarter of 2023.

So thank you. That was a quick run through, and I'm happy now to take some of the questions, specific questions, and we'll answer those.

[Operator]

[Operator Instructions].

[Mark Anthony Abbott, executive]

Okay. So the first question here is apart from Wressle and site specifically fracking sites, which are planned for developing and when will they start and potentially bring in an income?

So I think we've highlighted there that 2023, 2024, should see quite a lot of additional drilling activity, which will lead to revenue generation at a number of our producing sites and potentially exploration sites. So we've highlighted their Wressle with the gas monetization and the Penistone Flags. Keddington in terms of a side track there to access 180,000 barrels of additional resource. Avington, which is operated by oil and gas is currently undergoing a recommissioning program. And we'd expect to see production from that during this period.

We are developing the well across redevelopment opportunity. Again, we look to see activity in there. And then I suppose in terms of our final shut-in field, we have had interest in terms of our [indiscernible] field in terms of a farm in there, and we're looking to progress that. So again, we would expect potential drilling activity there 2023, '24. So I think quite a lot of activity there. And all of those capable of converting quite quickly into new revenue streams.

And then, of course, we've got Biscathorpe and North Kelsey. Biscathorpe, the planning application there is for the side track testing and then development. And so with success there, we'd expect to bring that onto production very quickly. And the same thing would apply at North Kelsey in terms of converting that from an exploration well, testing to production relatively quickly.

Second question here, assuming the gas at Wressle canon will be monetized sometime realistically, how long will this now take and how much progress has been made so far?

So I think we set out a clear plan there. We did look at gas to grid for the Ashover Grit, that would have required additional planning and permitting. And when we looked at the lead time for some of the grid connections for some of the long lead items there, we felt that, that wasn't going to be the optimum way forward. So we've now got a plan using the Ashover Grit gas very quickly for site use, which will lift the limit on production slightly, possibly up by as much as 20%.

And then installing a gas engine and export into a local gas electricity network, private network because the local grid in this area can't take the sort of electrical production that we would require for it to be material and worth the investment. So we've got a very clear short-term plan, we're not able to give a precise date for the gas, the 1.75 gas to wire, but that will be -- we'll be updating on that very soon as we get the final information on procurement there.

And Phase 2 for the Penistone Flags will be part of the planning application for the development of the Penistone Flags and include as part of that gas to grid because of the higher gas volumes associated with the Penistone Flags.

In terms of a third question here, could you tell us your timetable and which will take priority for drilling at Keddington, Biscathorpe and any other works at Wressle in 2023? Union Jack in the half year report stated the second half of '22 seeing considerable activity from the operators involving the planning and designing of key wells to be drawn at West Newton Keddington potentially Biscathorpe during 2023.

So I think I've highlighted in the presentation there that we -- obviously, Biscathorpe is dependent upon planning, and we look to drill that as soon as we're able to. Wressle will require planning for the Penistone Flags development, but we would hope to see that during 2023 with a positive outcome on planning and permitting. At Keddington, we don't require any planning or we do require perhaps a minor permit changes there, so again that will be a 2023 well.

The next question here is, what was the average Ceres gas price we see during the year and what prices are you currently receiving?

I've tasked James Elston there. James, could you want to say that?

[Unknown Executive]

Good morning, everybody. The average gas price we received for Ceres was 151p [indiscernible] , which in dollars a barrel of oil equivalent is somewhere in the $140, $150 a barrel. So it's quite extraordinary realizations really for the period.

[Mark Anthony Abbott, executive]

Thanks, James. And just in terms of what we're currently receiving, it's basically [indiscernible] day-ahead pricing that we get there. So it is a little bit lower at times than the sort of headline longer-term month-ahead type of rates and has been a little bit more volatile, but it's still very, very strong.

I got one here. Sorry if I missed it, but when do you expect to receive planning permission on North Kelsey and what's your views on the likely outcome?

So we're still waiting from the planning inspectorate for a bespoke timetable for that appeal. So to some extent, it's still within the hands of the planning inspectorate. I hope would be that, that wouldn't be too long in coming. And if that's in the early part of 2023 then that still fits in with the ability to drill that within that 12 months following that.

What's our view on the likely outcome?

We believe we've got a very strong case. Effectively, what we asked for there was a 12-month extension to the existing planning. The reasons for refusal we don't think are valid planning reasons. And so we believe we've got a very, very strong case. However, we always have to temper that with the fact that it is down to the decision of the planning sector. But the local politics should be taken out of that decision in terms of the way that they will assess the information.

The next one is what steps are the company taking to protect itself as the world transitions to renewables, et cetera?

So that's an interesting question. So yes, we're transitioning to renewables, and you'll see that we have a plan to look at those opportunities within the energy transition that we can see value for our shareholders and look to develop. But during the energy transition, we are still going to require a lot of oil and gas. So all of the projections from the committee on climate change show that right out to 2050 and probably beyond, we will be using natural gas and we will be using oil. And the U.K. will be a net importer of both of those commodities on all but the most extreme cases that they run.

So, I think we're looking ahead and looking at the opportunities, but we also believe that there will be a place for oil and gas during that transition. I think one of the issues is the politics, and we're in a COP27 cycle at the moment and the narrative that tends to come out of government doesn't bear reality to the energy markets and the energy supply realities of the U.K. and elsewhere. So there tends to be more of a risk around the politics rather than the realities of oil and gas, in my opinion.

And then the final question is there is how many warrants are outstanding?

So that's not one actually have to hand at the moment. Perhaps that's one I can come back to you on and provide that information in a follow-up. We have had a number of warrants exercised during the period, as you see in the statements or you'll see in the annual report accounts when it comes out, and that will summarize the number of warrants that are outstanding. So I think I'm already saying that's all of the questions that I have in front of me. Jake?

[Operator]

Yes, absolutely. Thank you very much indeed for being so generous if your time then addressing every single question that came in from investors this morning. Of course if any further questions do come through, we'll make these available to you immediately after the presentations ended for you to review and then add any additional responses where it's appropriate to do so. Mark, perhaps before redirecting those on the call to provide you their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that would be great.

[Mark Anthony Abbott, executive]

Okay. Thank you. Well, firstly, thank you very much for your time this morning. I hope you'll agree that the results have been very, very positive for the 12 months to 31st of July. And I think the outlook for the business, notwithstanding some of the headwinds in terms of the moratorium are very positive. We've got a number of high-quality projects that we're looking to develop and move forward on in the next 12 to 24 months. That will be our absolute focus. And I think we also have a very interesting potential energy transition strategy that we'll say more about over the coming period. So thank you for your time this morning. And I hope the shareholders, potential investors, we can look forward to another positive year 2022, '23 and 2023, '24. So thank you.

[Operator]

Mark, that's great. And thank you once again for taking the time to update investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback. In order the management team can better understand your views and expectations. It's going to take a few moments to complete, but I'm sure it'll be greatly valued by the company.

On behalf of the management team of Egdon Resources plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.