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VSA CAPITAL MARKET MOVERS - Edgon Resources: FY 2018 Results

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Egdon Resources#: FY 2018 Results

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Financial Performance

Egdon Resources (LON:EDR) has announced full year results for 2018. Production in H2 FY 2018 was 70bopd, down 41% YoY, resulting in full year production of 84boepd, down 20% YoY. The impact on production was due to the timing of maintenance at Ceres as previously announced. Gross revenue was flat YoY at £1m although due to an accrued revenue write off net revenue of £0.78m was 25% lower YoY.

Total cost of sales were up 11% YoY due to an increase in net one offs with pre license and exploration costs of £1m more than offsetting impairment reversals of £0.65m, both having been immaterial in the prior year. Direct production costs of £0.82m were up 9% YoY. The net loss therefore widened from £1.7m to £2.0m. Capex of £1.8m was up from £1m YoY in the prior year. EDR finished the year with a robust cash position of £2.8m and continues to be debt free.   

Key Catalysts in FY 2019

With primary production now back online at Ceres, the company has guided to 125boepd in H1 2019 from Ceres alone and group production of 150-180boepd. We therefore anticipate a more than doubling in full year average production to 210boepd and a return to profit for EDR of £0.8m. In addition, an appraisal well is due to be drilled at Biscathorpe in the coming period which is a major step for EDR, who is operator, while at Springs Road IGas (IGAS LN) has completed site construction and is due to drill in early calendar 2019.

Developments for UK Shale

Cuadrilla have now begun testing at Preston New Road. Results are likely to be announced in late 2018 or early 2019. We note that three stoppages have already been forced due to the low 0.5ML limit, however, these remain well below what could be felt at surface.

Recommendation and Target Price

With a positive near term earnings outlook and upcoming drilling there are key near term catalysts which we believe can drive a rerating of the shares to breakout from the recent rangebound trading. We reiterate our Buy recommendation and target price of 50p.


Oliver O'Donnell, CFA, Natural Resources & China | T: +44 (0)20 3617 5180 | E: [email protected]

VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com

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