ADX Energy (ASX: ADX): Deep dive into Italy
• ADX has released further details on its C.R 150.AU permit; located in shallow waters offshore western Sicily, ~50 km from a potential onshore tie-in to the TransMed pipeline, which transports Algerian gas to Europe.• While initial efforts centred on the Nilde oil field, ADX has shifted its strategic focus toward gas, reflecting the evidence of high quality gas from historic oil exploration in the permit, Europe’s growing demand for domestic supply and the recent offshore development of nearby Argo-Cassiopea—the largest greenfield gas project in Italy (~350 bcf).
• Italy’s current regulatory and political environment remains supportive of upstream activity, with continued exploration across the Sicily Channel.
• The area has been historically very prospective for gas. Notably, in late 2024, ENI and Energean encountered ~100 bcf at the Gemini discovery, which may be commercialised via Argo-Cassiopea infrastructure which commenced production in August 2024. On ADX’s permit, gas shows were recorded at multiple depths (512 m, 657 m, and 812 m) in the Nilde 2 well while targeting deeper oil reservoirs.
• The gas play targeted by ADX is proven, with excellent reservoir characteristics observed in regional analogs across Sicily and Tunisia—most notably porosities exceeding 30%. Multiple prospects were identified in high quality 2D seismic indicating gas amplitudes.
• The principal risk for ADX is commerciality. However shallow water depths, drill depths and proximity to shore is expected to facilitate the commerciality of any discoveries. The company believes that a 150 bcf development would be viable, supported by stacked reservoirs capable of delivering high flow rates. As of 2022, five mapped prospects on the permit were estimated to contain 369 bcf of prospective resources (best case). With ongoing seismic reprocessing, combined with data from recent discoveries, ADX expects both the number of prospects and the resource estimates to increase materially, driven by improved imaging of stacked reservoirs and higher porosity assumptions. The P10 case for the existing prospects already suggests 772 bcf of prospective resources, with associated geological risks expected to decline.
• We re-iterate our target price of A$0.30 per share.
Italy economics
Italy offers attractive fiscal terms for upstream development, with royalties set at just 10% and a corporate tax rate of 27.5%. ADX estimates that a 300 bcf gas development—spanning three fields and six subsea-completed wells (each producing ~15 mmcf/d) tied back to shore—would require capital expenditure of ~US$380 mm. Based on current assumptions, this project carries a undiscounted free cash flow of ~US$1.6 bn, equating to ~A$4.00/sh.
Valuation
Our ReNAV of A$0.28 per share for the company is unchanged.
Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.
The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.
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