ADX Energy (ASX: ADX): Logging results at Welchau further derisk the discovery
• The logging program has confirmed open fracture networks and vuggy porosity (matrix porosity) essential for well productivity coincident with hydrocarbon shows between 1346 m and 1702 m measured depth. This represents 356 m of gross interval across three interpreted lithological sequences. This compares with only 115 m of liquids-rich gas shows announced previously.• Intervals with good hydrocarbon shows clearly correlate to either fractured zones or zones with vuggy porosity. This provides reassurance as to the consistency of the interpretation. The zones with the best characteristics within the ~356 m of gross already represents a total of ~40 m. This producible area could be much larger as it does not include all the zones with good characteristics.
• The MDT-tested intervals show medium to very high permeability which accords with fracture density and petrophysical log interpretation. This is important and positive as good permeability is important for flow rates.
• ADX could not acquire representative downhole samples due to mud losses in the open fractures. The surface interpretation of recovered samples were contaminated with mud from fractures due to losses while drilling. The MDT tool was then stuck in the well. It was eventually recovered but could not be re-used.
• After MDT logging, liquid hydrocarbon and gas inflow to the wellbore was observed at surface following downhole sampling operations. This was probably due to the MDT tool sampling process inducing a flow of reservoir hydrocarbons despite the over-balanced mud weight. This is positive as this confirms the mobility of hydrocarbons in the reservoir.
• Mud gas readings for C1 of up to 20% were recorded from the well bore with heavier components up to C5 recorded. The condensate yield could be higher than initially expected.
• The well will now be cased ahead of testing in 4Q24. Required environmental permitting for future operations will commence immediately. It will include additional drilling locations.
• We view the confirmation of the reservoir quality (fracture plus matrix) and of the mobility of hydrocarbons as positive developments. We re-iterate our target price of A$1.00 per share. We see the share price movement as an opportunity.
Valuation
Our ReNAV is unchanged A$1.00/sh. Our Unrisked NAV for Welchau is A$1.55/sh.
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.
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