LONDON (Alliance News) - Egdon Resources PLC on Tuesday said its pretax loss widened in the last financial year after revenue dropped as a result of lower-than-anticipated production and the fall in oil prices, as the company gears up for high levels of drilling activity, including the potential to begin fracking in the UK during 2016.
The oil and gas producer with operations in the UK and France reported a GBP4.5 million pretax loss in the year ended July 31, widening from the GBP456,405 loss a year earlier. Revenue fell to GBP2.1 million from GBP3.0 million.
Gross loss also widened to GBP3.5 million from GBP764,638 the year before, after Egdon's cost of sales soared to GBP5.6 million from GBP3.7 million. Its cost of sales increased after exploration write-offs and impairments rose to GBP3.6 million from GBP868,992, partially offset by depreciation and other costs dropping to GBP2.0 million from GBP2.9 million.
An increase in administrative costs to GBP1.2 million from GBP832,270 also contributed to the wider pretax loss.
Revenue fell as production dropped to 63,149 barrels of oil equivalent in the year from the 86,870 barrels produced in the previous financial year, compounded by lower oil prices.
That equates to daily production of around 173 barrels a day, compared to 238 barrels the year before and lower than Egdon's revised target of 180 barrels a day. Production was from Ceres, Keddington and Avington, all in the UK, with the Waddock Cross field being shut-in during the year due to the lower oil price and lower-than-anticipated production.
"In a year in which we have seen a dramatic decline in the price of oil, we have performed well against our strategic aims. The company has made a significant discovery at Wressle and has been offered a number of important licences in the first phase of the 14th (Licensing) Round," said Chairman Philip Stephens.
The Wressle-1 discovery is a conventional resource in Lincolnshire and part of a joint venture with fellow London-listed Europa Oil and Gas (Holdings) PLC and Union Jack PLC. In October, the partners said they were confident of getting around 500.0 barrels a day from the well if they could fix a previous problem which limited production under test conditions to only 80.0 barrels a day.
The UK's 14th Licensing Round, by which companies can apply for new acreage, closed in October, and Egdon has been offered interests in seven blocks or part blocks in the first tranche of awards.
"These offers build on the company's unconventional resource exploration acreage in Northern England where Egdon has developed a strong licence position particularly in the Gainsborough Trough, an area identified by the British Geological Survey as holding high potential for unconventional resources," said the company.
The second tranche of awards will be announced before the end of 2015, when Egdon may snap up more acreage.It said it also plans to bring in a funding partner for its licenses in Northern England "at the appropriate time".
Importantly, many of the onshore acreage being offered by the UK is suitable for shale gas extraction, known as fracking. There are a number of companies, including London-listed stocks, which are pushing to open up fracking to the UK since the Conservatives won an outright majority in the general elections in May, when they pledged to support the industry despite some resistance from concerned environmentalists.
"Subject to consents, 2016 should see several shale-gas exploration wells drilled and tested in the UK which will, if successful, focus investor attention on the few listed companies active in the UK. We also look forward to further licence offers when the second tranche of 14th Round awards are announced, hopefully towards the end of 2015," Egdon said.
Egdon is hoping to drill its first unconventional well in 2016 at Gainsborough Trough, if it can secure the necessary approvals and permits. It would be carried on the costs of that well by its partner should it get given the go-ahead.
"Another prime focus during the coming year will be commercialisation of the Wressle-1 discovery, and we hope to replicate this exploration success in our planned drilling activity during 2015-16. As a result of various planning restrictions and rig availability, drilling is now expected to commence in December 2015 at Laughton, to be followed by an appraisal/development well at Keddington in the first quarter of 2016, which should result in increased production from this late life field," said Egdon.
"Despite the current low oil price and the uncertain future level, we believe that the fundamentals of the business remain strong with the company holding a range of assets with excellent potential for both conventional and unconventional resources and a cash position which allows us to deliver on our strategy," said Chairman Philip Stevens.
Egdon shares were trading down 10% to 9.20 pence per share on Tuesday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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