The moratorium on fracking, along with planning delays and weak commodity prices are a challenge for the future, Egdon Resources has concluded
In accounts for the year to the end of July 2019, the directors said:
“[the combination] represent a material uncertainty that may cast significant doubt upon the group’s ability to continue as a going concern.”
While Egdon said it has promising interests in shale gas sites and the business remained “robust”, the directors added:
“the group may be unable to realise its assets and discharge its liabilities in the normal course of business”.
Egdon Resources tripled its unconventional resources in 2014-2017 to a net value of £15.5m, mainly in the Gainsborough Trough in the east midlands.
It said it believed the moratorium on fracking, imposed by the government in November 2019, should be lifted.
But it said it was now concentrating on its conventional oil and gas resources.
Managing director, Mark Abbott, said:
“Egdon is confident of being able to work with its industry peers to provide evidence to the OGA [Oil & Gas Authority] and other regulators, to demonstrate that hydraulic fracturing for shale gas in the basins where we operate, can be undertaken in a safe and environmentally responsible manner and that therefore the current moratorium on hydraulic fracturing for shale gas exploration should be lifted.”
But the accounts added that the company had paused in its growth of shale gas acreage and said:
“In the short-term we will focus on our conventional resource portfolio”.
Frack plan for Misson
Mr Abbott gave one of the clearest hints of longer-term plans to frack at Springs Road, Misson, the IGas-operated shale gas site in Nottinghamshire.
He listed as an objective for the next year:
“Subject to lifting of the current moratorium, progressing the planning and permitting for the drilling and testing of the Springs Road-2 well.”
Egdon has a 14.5% stake in the site, where the first well was drilled, but not fracked, in January 2019. So far there’s been no formal information on the future for the site.
Springs Road-1 encountered all three pre-drill targets in the Bowland shale and identified significant gas indications in the Millstone Grit, lower Bowland shale and the Arundian Shale, the Egdon accounts said.
“The results from this carried well compare favourably with some of the best US commercial shale operations and highlight a potentially world class resource.”
The accounts added:
“The core results indicate a mature, organic rich source rock with good porosity confirming favourable gas resource density.
“The low clay content is encouraging and is an indication that hydraulic fracturing of the rock should be effective”.
Default at Biscathorpe
The accounts revealed that one of Egdon’s joint venture partners, Humber Oil & Gas, had defaulted on payments for operations in the Biscathorpe licence, PEDL253, in Lincolnshire.
Egdon, which operates the licence, said it had: “enforced its rights under the Joint Operating Agreement default provisions and commenced proceedings to recover the sums owed”.
The outstanding balance at the date of default was £0.79m, Egdon said. The remaining parties had assumed responsibility for the payment of invoices. Egdon’s pro-rata share of this amounted to £327,200.
Egdon said it aimed to finalise a forward plan for Biscathorpe, where a well drilled in January 2019 failed to encounter the target formation. It did, however, identify oil in the Dinantian limestone which could be reached by a sidetrack well, the partners have said.
Delay at Wressle
Egdon said its cash flows had also been hit by delays in a decision on long-term oil production at the Wressle site in north Lincolnshire in PEDL180.
The company appealed against a refusal of planning permission and the result of a public inquiry held in November 2019 is expected imminently.
Egdon’s share of oil reserves fom Wressle were estimated at 0.35-2.11mmbbs, the accounts said. If the production application were approved, Egdon said it hoped to see oil flowing within six months.
The accounts added that the OGA had granted extensions to the second terms of PEDL180 and 182 to 31 August 2021.
Farm-out sought for North Kelsey
Egdon said it was aiming to farm-out drilling an oil exploration well at North Kelsey, in PEDL241 in Lincolnshire during 2020.
The company has an 80% stake in the licence and operates the North Kelsey site.
No construction work apart from an entrance has been carried out so far.
A24 licence extension
The accounts reveal that the OGA had granted a two-year extension to PEDL143, formerly known as the Holmwood licence in Surrey. The initial term of the licence, now called A24, runs until 30 September 2022.
A potential drilling site in the PEDL at Bury Hill Wood (Leith Hill) was abandoned when the environment secretary refused to renew the lease on forestry commission land.
Egdon, which has an 18.4% stake in the licence, said:
“Multiple potential new drilling sites outside the nearby Area of Outstanding Natural Beauty are under evaluation.”
Egdon’s share of oil production from the Keddington and Fiskherton Airfield sites in Lincolnshire were 20boepd in the year to July 2019. A similar volume was expected in the year 2019-2020, the accounts said.
The company said it was reviewing options for additional drilling at the Keddington. It was also looking at restoration of production at its sites Waddock Cross (Dorset), Kirkleatham (North Yorkshire) and Dukes Wood (Nottinghamshire).
Other licence changes
The accounts revealed:
- The Widmerpool Gulf licence, PEDL201, on the Nottinghamshire-Leicestershire border, had been extended to June 2024.
- PEDL191, the licence immediately north of IGas’s Ellesmere Port site in Cheshire, had been extended to June 2023.
- Egdon relinquished part of PEDL306 on the Leicestershire-Nottinghamshire border, and the initial term had been extended to July 2024.
- The initial phase of the Humber Basin licence, PEDL334, in Lincolnshire, had been extended to the same date.
- The Westerdale Prospect licence, PEDL068, in North Yorkshire had been part relinquished, with a write-off of £753,000.
Source: Egdon Resources accounts for the year ending July 2019
Number of licences in which Egdon has an interest: 44; 2018: 44
Revenue from oil and gas production: £2.20m; 2018: £1.21m; up 81%, due to restoration of production at the offshore Ceres well.
Loss for the year: £1.72m; 2018: £1.98m
Impairments and write-downs: £0.45m; 2018: £0.40m
Net current assets: £1.91m; 2018: £2.87m
Fundraising before costs from open offer: £2.17m (supported by two largest shareholders Petrichor Holdings and Premier Oil; 2018: Nil
Loss per share: 0.64p; 2018: 0.76p
Dividend: Nil; 2018: Nil
Average number of group and company employees: 12; 2018: 12
Wages and salaries: £838,079; 2018: £883,636
Board changes: Martin Durham replaced Jerry Field as technical director and Tim Davies replaced Andrew Lodge as non-executive director.