ADX Energy (ASX: ADX): Permit award in Italy opens a new growth area
• ADX has been offered and accepted the “d 363 C.R-.AX” permit in the Sicily Channel, offshore Italy, covering a maximum area of 346 km2.• ADX applied for the permit in 2018, but the moratorium on awarding new exploration blocks in Italy was only lifted last year. ADX will become a licensed operator in Italy as well as Austria and Romania.
• While the permit is estimated to contain oil contingent resources, ADX has chosen to focus on natural gas which is also proven in the block, with 369 bcf prospective resources across five high-graded prospects based on structural closures alone. The existing seismic indicates the likelihood of stacked pay and stratigraphic trapping which could provide much larger resource potential.
• The Nilde-2 oil well, drilled on the permit by ENI and Shell in the 1980s, encountered high-quality sweet gas in shallower horizons.
• The targeted gas reservoirs are high-quality sandstones at a vertical depth of only 700-1,300 m, in a water depth of 100 m. An offshore gas well in the area could cost approximately EUR 15 mm.
• An analog and a tie in opportunity in the Sicily Channel is the recently developed ENI/Energean Argo-Cassiopea offshore gas field (in c. 660 m of water), which started production in August 2024. The field's ~360 bcf gross reserves will be developed with four subsea wells (one already online) tied back to shore, with a peak rate of 150 mmcf/d.
• Fiscal terms in Italy are very attractive, with a 10% royalty and a 29% effective tax rate.
• Pending further visibility on the next steps at Welchau, following the suspension of testing activities (awaiting clarification from the State Administrative Court of Upper Austria on the approval situation), ADX anticipates being able to monitor pressure build up on the well and potentially sample inflow from the Upper Reifling Formation
• We have not changed our target price of A$0.30/sh. We are also expecting details on the 2025 activity programme, including drilling plans for low-risk shallow gas wells in Austria.
Next steps in Italy
The formal award of the Italian permit is expected within two months. ADX will then acquire and re-process the available high quality 2D seismic data before updating its mapping work on the block. This is expected to increase the inventory of prospects some of which may have wells where historic gas shows have been encountered. Further 3D seismic could then be acquired and a first well could be drilled as early as in 2026/2027.
Valuation
Our Core NAV for ADX is A$0.07/sh and ReNAV is A$0.28/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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