Egdon Resources (LON:EDR)
Egdon Resources (EDR LN) has announced that it has increased its interest in PEDL 180 and PEDL 182 by 5% in each. The licenses contain Wressle and Broughton North respectively and the positions have been acquired from Celtique Energie Petroleum for a deferred cash consideration of £0.417m payable on first oil. Union Jack Oil (LON:UJO) and Humber Oil & Gas will each also acquire 12.50% in the same license areas on the same terms under separate deals from Celtique Energie.
This structure is attractive, in our view, given there is no immediate cash payment and the transaction is effectively contingent on successful planning application. EDR intends to submit a new planning application for the Wressle development following additional boreholes drilled on site. The information from these boreholes should provide information to directly address the matters highlighted in the prior application.
Following the announcement, our valuation is adjusted accordingly to reflect the higher interest. Although Wressle’s near term cash flow potential is of significant benefit to EDR, it forms only a small part of the valuation (1p/share) and the additional 5% interest takes our target price only modestly higher to 52p/share.
Therefore, despite a strong recent rally in the share price, we believe that with major catalysts coming up in the next few months for both EDR’s conventional and unconventional portfolio that there is significant further upside potential.
We reiterate our Buy recommendation and adjust our target price up to 52p.