The equity market is implying very little value for Egdon's (LON:EGRE) UK shale positions, which span the Gainsborough Trough, Widmerpool and Humber Basins. We see near-term catalysts that could reduce risks and uncertainty relating to the valuation of UK shale assets with initial flow tests from Cuadrilla-operated Preston New Road expected in Q418. Our probabilistic valuation of UK shale assets describes uncertainty in relation to UK shale. We conclude a potential 67% chance of commercial success and net risked P50 valuation of $2,142/acre (we do not include political risk in this metric). Based on our analysis we believe Egdon’s current EV of $22m offers investors a low cost option on over 205,000 acres of UK shale if proven commercial. Our conventional valuation stands at 12.8p/share including risked exploration. The valuation of shale resource remains uncertain but in our view has the potential to be worth in excess of risked 100p/share based on current expectations of well cost, type curves, and forward gas prices.
Market implying minimal value for shale acreage
We believe the market is implying minimal value for Egdon’s UK shale position, despite potential near-term catalysts that could significantly de-risk and provide greater certainty on UK shale economics. For more detail, please refer to our AJ Lucas initiation note published on 9 April 2018.
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