Cantor Fitzgerald Europe: Egdon completes acquisition and Sound Energy returns to Morocco
Reacting to the latest updates from Egdon Resources and Sound Energy, Sam Wahab, director of oil & gas research at Cantor Fitzgerald Europe has issued the following reaction:
Egdon Resources (BUY) – Egdon increases onshore UK acreage position
Our view: in an encouraging update, Egdon has announced the completion of the acquisition of an interest in a licence in the company’s East Midlands core area, which includes the 1985 Kirk Smeaton tight gas discovery and further prospectivity at minimal cost. This acquisition is consistent with the company’s core strategy of building a UK onshore footprint in core areas with low risk upside. We reiterate our BUY recommendation and 31p TP.
- Further acreage acquired onshore UK – Egdon has acquired a 50% interest in PEDL278 from Celtique Energie Petroleum and Investcan who were originally awarded the licence in the 14th Round. Egdon will partner IGas Energy (N/C) on the licence which contains the Kirk Smeaton tight gas discovery (RTZ, 1985) and other conventional and unconventional prospectivity. This acquisition adds 4,695 net acres to Egdon’s unconventional resources position which now amounts to a considerable total net area of c.206k acres.
- Valuation undemanding – We ascribe a core value of 8.9p/share (which includes the company’s 2017/18 drilling programme and financial items) and 22.4p/share to Egdon’s shale acreage. We therefore reiterate our BUY recommendation and our TP of 31p.
- Risks – Geological risk, drilling risks, volatility in commodity prices.
Sound Energy (BUY) – Drilling underway in two geographies
Our view: Sound has confirmed that operations to re-enter and test the Koba-1 well at Sidi Moktar, Morocco, have now commenced. Operations will include the perforation and testing of the Lower Liassic and a potential testing of the Argovian. The total operation is expected to take approximately ten days, after which the rig will move to the Kamar-1 well for the second stage of the operation. In addition, at Badile (Italy), drilling continues towards the reservoir which Sound expects to penetrate just above the pay zone, later this month. We believe that the recent retrenchment in the share price has led to an attractive buying opportunity ahead of a number of near term share price catalysts. We therefore retain our BUY rating and 76p TP.
- Operations progress at Sidi Moktar – Two wells will be re-entered and tested by Sound, Koba-1 and Kamar-1, which have already been drilled at Kechoula by previous operators and are estimated to have a gross unrisked mid case original gas in place in the Lower Liassic reservoir of 293Bcf. The company will require the reprocessing of existing 2D seismic, acquisition of new 2D seismic and drilling results before forming its own volume estimates for the exploration potential of the Sidi Moktar licences.
- Attractive entry point – We believe that Sound has sufficiently grown its acreage position to become a material player in Mediterranean gas. The company is benefitting from attractive and robust pricing fundamentals which have served to boost project economics. With a number of drilling catalysts in the short term, supported by a robust financial position, and a funded 2017/18 drilling campaign, we see Sound’s current share price as representing a compelling entry point for investors. We therefore reiterate our BUY rating and 76p TP.
- Risks – Geological risk, exploration risk (Badile), Government risk (Italy).