Egdon Resources - Focus on UK shale - a low-cost option

The equity market is implying very little value for Egdon’s 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.