By Amy McLellan
You wouldn’t know it from the ailing share price but things are moving along pretty well for onshore E&P specialist Egdon Resources. Admittedly there are strong headwinds for the AIM-quoted stock – the low oil price environment, slippage in production and political uncertainty around its shale gas portfolio – but the company has had a positive start to 2015 with the successful Wressle-1 discovery in Lincolnshire.
It is also entering the second half of the year with a strong pipeline of drill-ready prospects, a carried position on the important Gainsborough Trough shale exploration well and cash of £6.5 million.
Wressle is a notable success. It has tested at a combined rate of more than 700 boepd from four intervals and an extended well test of the Ashover Grit and Penistone Flags oil zone will take place over the summer as the company (Egdon operates with 25 per cent) and its partners start working towards early monetisation.
“We will get the pump down around the middle of May and it will take two months to get information from the two zones,” chief executive Mark Abbott tells oilbarrel.com. “We are also progressing with our development studies and could be into production by the end of the year.”
The company’s focus on onshore drilling means its portfolio is resilient to lower oil prices: Abbott says most of the company’s projects are economic down to very low oil prices, with most breaking even at oil of US$30 per barrel or even significantly lower.
Further conventional drilling is on the books for this year, with planning consents in place for the drilling and testing of exploration wells at Laughton, North Kelsey and Biscathorpe. These exploration wells will target (net to Egdon) best estimate prospective resources of 10.8 million barrels of oil. The first well to spud is likely to be Laughton-1 in October, targeting a small prospect (1 million barrels) that is on trend with nearby (5 km) existing production at Corringham. Egdon has 60 per cent.
The company also has a substantial unconventional resource exploration portfolio in the UK, where the fledgling shale industry has been boosted by recent transactions among fellow shale players, most notably the high value farm-out struck between IGas and INEOS, with the investment programme from chemicals giant bringing the value of UK unconventional resource farm-ins to a total of £260 million in carried expenditure and £80 million in cash to date. Egdon is keen to tap industry appetite for unconventional projects by finding its own partner to help fund exploration across its large portfolio.
A key test for Egdon’s shale ambitions is due around year-end, when the first exploration well in the Gainsborough Trough is set to spud, pending all necessary permits. Egdon’s costs for this key Igas-operated well will be carried by Total under a deal announced in January 2014.
“This is a key well for the basin and it’s pivotal for us because it’s right in the sweet spot of this key focus of our acreage,” says Abbott, who notes the up-swell in shale activity in the UK, from Third Energy plans to frack a well in the Cleveland Basin to Caudrilla’s planning application in the Bowland Basin.
Something of an oddity in the Egdon portfolio is prospect “A” in the North Sea off the North Yorkshire Coast. This is a 1966 vintage gas discovery that is reckoned to host a very material 150 BCF of gas. Egdon plans to appraise this by drilling a 4 km step out well from an onshore location but is seeking a farm-in partner to help meet the estimated £7.5 million to £10 million pricetag on the project.
The company’s interim results show revenues were down at £0.91 million for the six months to January 31 as a result of lower production from its Ceres, Keddington, and Avington fields (148 boepd compared to 194 boepd in the prior year period) and lower prices. Full year guidance has been revised down from 195 boepd to 180 boepd. There was a loss of £1.74 million for the six month period. Even so, with a relatively strong balance sheet, low operating costs and some exciting wells lined up for the coming months, this could be an important year for the company.