ADX Energy Limited (ASE: ADX): A high-quality industry partner in Austria to fund and accelerate Anshof development
• ADX is farming out 30% WI in the Anshof discovery to MND. On closing, ADX will hold 50% WI in Anshof.• MND will pay ADX ~A$3.2 mm for back costs and long lead items for the Anshof-1 and 2 wells on completion of the transaction. MND will also fund ADX’s share of drilling and completion costs of A$3.9 mm per well (total of A$7.8 mm for two wells). This results in total firm payments of ~A$11 mm to ADX.
• In addition, MND will pay a further ~A$2.2 mm in back costs and fund ~A$6 mm of ADX’s net share of an additional work programme if Anshof-2 performs in line with independent expert prediction. We view this performance-based milestone as very low risk.
• MND is a very credible industry player in the region and the decision to enter Austria with ADX highlights the materiality and attractiveness of ADX’s assets. The transaction values ADX’s residual 50% WI in Anshof at A$18-32 mm (excluding the value of the carry). This represents 57% to 98% of ADX’s current market cap or US$4.7 to 8.1/bbl of 2P reserves.
• The transaction provides funding to accelerate Anshof’s production ramp-up and increases ADX’s ability to bring forward further exploration including Welchau and further gas exploration.
• Separately, ADX has agreed terms with MND for further investment in gas exploration in an area within the ADX-AT-I licence. This could be announced shortly and will provide further funding for exploration drilling. ADX continues to be in discussions with other parties to farm out interests in its other Austrian assets. The entry of MND could act as a catalyst for other players to follow suit.
• While the funding risk for Anshof has been reduced significantly, we have changed our target price to A$0.080 per share as we factor dilution. This represents ~9x the current share price.
Timing of Anshof development
Anshof-2 is planned to be drilled in 4Q23. ADX then plans to install a 2-3 mbbl/d permanent production facility. Anshof-1 is planned for 2Q24 to increase gross production at Anshof to 750-1,000 bbl/d from 3 wells.
Valuation
The transaction with MND values ADX, based on Anshof only, at A$0.008-0.013/sh (excluding Zistersdorf and any contribution from exploration). Our Core NAV based on the company’s 2P reserves stands at A$0.012/sh. De-risking the 3P/3C at Anshof would add >A$0.045/sh (~5x the current share price). Our ReNAV now stands at ~A$0.08/sh. The Welchau prospect, expected to be drilled in 2H23, has an unrisked NAV of A$0.19/sh.
ADX Energy is engaged as an oil and gas exploration company. As of Dec 31 2015, Co. operated five oil and gas permits in North Africa and Europe, which under following projects: Kerkouane project located in Tunisia; Pantelleria project, Nilde project and Orlando project, which are located in Italy; and Romania project, which Co. held 50% interest on its project.
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.
Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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