Eden Innovations Ltd V.EDE

EDE

[ESSET]

Merchant Securities first note 1/3/13

Edge Resources* (EDG.L) Oil & Gas
BUY
After quarterly results, focus turns to Asset East well
ƒÞ Quarterly production results were reasonable (834 boe/d, consisting of 26% oil, 29% natural gas
liquids and 45% natural gas) considering that Edge recompleted a well at Primate and that the
company suspended production of the Asset East discovery well until a water disposal unit is
constructed, expected near year-end (which can, if required, be used by other Asset East wells).
ƒÞ The company is currently drilling its second well into Asset East, which consists of three pools
identified by 3D seismic and the discovery well. Initial well results should be provided in the coming
days, based on wireline logging. The wireline logs will indicate the height of the oil column and the
extent of the presence of water. Based on newly acquired 3D seismic (which was not yet acquired
when the discovery was made), Edge expects that the next well will have a thicker oil column and
less underlying water. Our target price assumes that nine future wells will be drilled into Asset East.
Good well results would almost certainly translate into a more extensive drilling inventory (20+ well
locations). We expect stabilised production results from the well will be announced months after
initial production commences. This well is more important than the quarterly results.
ƒÞ In addition to the well that is currently being drilled, the company has also prepared two well
locations (roads, drilling pads etc) for the first two horizontal wells drilled by the company. These
wells, like the Asset East well, have material potential to improve on the fortunes of the company.
Edge plans on drilling these wells as quickly as possible, subject to regulatory approvals, rig
availability and the inability to transport drilling equipment on muddy roads around March and April.
ƒÞ We reiterate our BUY recommendation and our 32p target price.