Egdon Resources (LON:EDR)
Egdon Resources (LON:EDR) announced on Friday that planning consent for the development of the Wressle oil field has been granted by the Planning Inspectorate on appeal. This is a significant and long-awaited step for EDR who will now begin detailed planning for the development works.
EDR has also been permitted to make an application for an award of costs against North Lincolnshire Council.
Given the lengthy planning process we have until now valued Wressle on a 50% chance of success although with development now proceeding, we increase that to 90% which values the asset at £4.8m (US$6.1m). Producing 150bopd net to EDR the field has significant positive implications for the company’s near-term earnings outlook commencing FY 2021. This was already incorporated into our base case, along with the capital cost, and YoY revenues are expected to increase by £1.5m YoY to £3.5m in FY 2021. Our capex forecasts for EDR in FY 2020 and FY 2021 are £0.9m and £0.5m respectively.
We also note the short extension from the 19th to 23rd January of the exclusivity agreement in relation to Licenses P1929 and P2304 which cover the Resolution and Endeavour prospects. This will enable the definitive farmout agreement to be completed by the potential partner, a large internationally recognised E&P, according to its internal approval process.
The Wressle decision, and indeed the upcoming agreement on Resolution and Endeavour, are welcome announcements which highlight EDR’s investment case as a UK focused E&P with an attractive balance between conventional and non-conventional assets as well as operating assets and those in development.
We reiterate our Buy recommendation although increase our target price by 0.7p/sh. to 39.1p/sh.