ADX Energy (ASX: ADX): Reflections on Welchau
• Three intervals in the Reifling formation (1324 m - 1340 m, 1346 m - 1351 m and 1358 m -1382 m MD) were perforated but only limited inflow was determined. No fluid could reach the surface after the well was shut in.• Sampling of the well indicated only completion brine (not reservoir fluid) and fine solid particles of unknown origin.
• ADX will analyse the particles to understand their origin before deciding on the next steps. This could include acidization of the reservoir. The particles could come from the reservoir or could potentially be the result of a chemical reaction between the drilling fluids and materials or fluid in the reservoir.
• ADX will continue to monitor the well for inflow and analyse the results of samples recovered from the well. A decision on further work on the well is not expected before early 2025.
• Pending the results of the analysis, we have changed our target price of A$0.30/sh.
• The shorter well test and lower drilling costs is expected to allow the Company to preserve cash. As we incorporate conservative flow rates for the new Anshof wells (150 bbl/d per well) and a development capex programme that ADX can manage with its own balance sheet, we estimate the value of the company based on its 2P reserves at Anshof and Ziesterdorf alone at ~A$0.07/sh. This represents >2x the current share price.
2025 activity programme
Under the worst case scenario of Welchau not being successful, ADX will focus on cash flow growth in 2025. Anshof-2A is expected to be brought on stream next week and could add >150 bbl/d net production. In 2H25, another well is expected to be drilled at Anshof (MND is expected to fund 70% of the cost in accordance with an Investment Agreement between ADX and MND) potentially adding the same production volume as Anshof-2A. Overall ADX’s net production could be over 400 bbl/d in 4Q25 (+80% vs 2Q24). At this level of production (run rate), we estimate that ADX generates ~US$1-1.5 mm/y of operating cash flow (after tax and G&A). The overall net capex for this programme is
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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