ADX Energy Limited (ASE: ADX): Competent person report confirms the materiality of the Welchau pospect
• The Welchau prospect has been estimated to hold between 365 bcfe and 1,128 bcfe of prospective resources by Gaffney, Cline & Associates (GCA) with a mid-case at 645 bcfe including 10.1 mmbbl of condensate.• While this is below the 807 bcfe mid-case estimated by ADX, the fact that the lower end of the GCA range (332 bcf of natural gas plus 5.5 mmbbl of condensate in the 1U case) is significantly larger than ADX’ estimate of 212 bcfe is the most important take away in our view. The unrisked value of the asset (A$0.09 per share) is very high even in the low case.
• Welchau is now expected to be drilled in September. Drilling will last 6-8 weeks. ADX has purchased all the necessary long lead items to drill the well.
• ADX continues to offer a combination of strong underlying value, increasing cashflow and reserves growth with very material exploration upside from an expanded near-term drilling programme. We reiterate our target price of A$0.100/sh.
Permitting and readiness
The environmental impact assessment for the Welchau-1 well was completed in March. ADX will now undertake a site survey that is expected to be completed by the end of June. This survey will be submitted prior to the grant of the final environmental approval. Any additional operational measures required to protect the environment will be determined by the survey but will not prevent the approval of drilling. All the drilling permits are expected to be granted in July. Austria provides a supportive and efficient permitting environment and ADX has strong local operating capabilities. This allowed ADX to drill the Anshof-3 well in less than 12 months from being awarded the ADX-AT-II licence and bring the well into production within 9 months from making a discovery.
Valuation
While the Welchau prospect is an important source of potential value (unrisked NAV of A$0.19 per share), ADX offers deep value, even excluding this asset. Our Core NAV based on the company’s 2P reserves stands at A$0.016/sh (>2x the current share price). De-risking the 3P/3C at Anshof would add A$0.036 per share (~5x the current share price). Our ReNAV stands at A$0.10 per share.
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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