ADX Energy (ASX: ADX): Water inflow from a small interval in Welchau deeper formation. Continuing well test up hole
• Two intervals in the Steinalm formation (1452.5 m-1463.5 m and 1474.5 m-1480 m MD) were tested at a stable rate (natural flow) of 240-290 bbl/d of drilling mud, likely contaminated formation water and some oil traces. Gas was initially observed at surface.• While the achieved flow rate highlights the high permeability of the natural fractures, the absence of hydrocarbons is disappointing and surprising given the results of the logs, the inflow of gas while drilling, the analysis of the retrieved cores (with indication of hydrocarbons) and the fact that down hole oil samples were recovered from this interval.
• Production logging results suggest that most (~80%) of the water inflow came from a single entry point at ~1478 m MD with hardly any contributions from the remaining perforations. The dominant flow is interpreted to be from a fracture system accessing an oil/water contact lower in the structure. This opens the possibility that some part of the Steinalm below that point could still be in the oil zone. In addition, there is at least 27 m of Steinalm reservoir above the main mud and water inflow entry point at ~1478 m depth.
• The shallower Reifling will now be tested, where influx of hydrocarbons was also witnessed while drilling. The Reifling formation is 128 m thick at the well location (Steinalm: 118 m). While the Reifling is less naturally fractured than the Steinhalm, the matrix and vugs permeability in the Reifling is higher. If the water encountered in the Steinalm came through the fractures from a deeper water zone, the fact that Reifling is less fractured could be a positive. However, the individual flow rate from a vertical well could also be lower, and the development of the formation could be based on horizontal drilling as is the case in Canada.
• Three intervals will now be perforated in the upper Reifling (starting from the top) including (1) 1324 m to 1340 m MD (16 m), (2) 1346 m to 1351 m (5 m) and (3) 1358 m to 1382 m (24 m).
• The Steinalm is the largest contributor to the prospective resources estimates. We are carrying a 70%/30% resources split between the Steinalm and the Reifling. Following the results of the flow test in the Steinalm formation, we have taken the cautious view to reduce our chance of development for this zone from 50% to 15%. This might be too conservative. We have left unchanged the Reifling. Our unrisked value for this formation is A$0.36/sh. We changed our target to A$0.40/sh.
Valuation
Our Core NAV for ADX is A$0.10/sh and ReNAV is A$0.42/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.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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