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AJ Lucas Group

Initial flow test results

Flash note | Oil & gas | 07 Feb 2019

Cuadrilla has become the first operator to have flowed gas from a horizontal shale gas exploration well in the UK. Initial results are encouraging, with recovered gas containing very high methane content (96%), no H2S and minimal CO2. Core samples suggest the Bowland shale is quartz rich, with low clay content and excellent properties for fracturing. Gas flowed to the surface from PNR1-z at a peak rate of 0.2mmscfd, but with just two of 41 installed stages along the horizontal section fully fractured as designed. Less than 14% of sand planned for injection was put in place as Cuadrilla attempted to operate within the regulatory micro-seismic traffic light system. Cuadrilla estimates that a 2.5km horizontal well, with all stages fractured as planned, would have a potential initial production (IP) rate of 3–8mmscfd (no IP time period stated). Data were not provided on type curve or potential estimated ultimate gas recovery (EUR) given the limited duration of the test. EUR would be a key additional input when determining commerciality. In our initiation note published on 9 April 2018, we estimated a minimum commercial 30-day IP rate of 5mmscfd for a 2.5km lateral.

AJ Lucas Group

Positive momentum in drilling services

Update | Oil & gas | 25 Sep 2018

AJ Lucas's FY18 (to end June 2018) results highlighted a material increase in drilling service revenues (+70%) and margins (+635% EBITDA). Based on AJL's current order book and leading indicators, management expects rig utilisation and mining sector drilling activity to be sustained in FY19 with robust margins after AJL's exit from legacy contracts in the coal seam gas and water markets. Our updated valuation reflects expected engineering and construction sales proceeds of A$25m and an increased valuation for drilling services. The net result is an increase in our P50 valuation for AJL Lucas of A$0.93/share (from A$0.86/share).

AJ Lucas Group

Consent received for fracturing first horizontal well

Flash note | Oil & gas | 25 Jul 2018

Cuadrilla becomes the first UK operator to have been awarded final consent to hydraulically fracture an onshore horizontal shale exploration well in the UK. On 24 July 2018, the Department for Business, Energy and Industrial Strategy awarded Cuadrilla consent to fracture the first of two horizontal wells at Preston New Road (PNR) well site. The company will now apply for consent to fracture the second of two wells drilled at PNR. Cuadrilla has previously indicated that initial results from a 90-day flow test are expected in Q418. The valuation of UK shale assets remains uncertain; however, our recent analysis indicates a 67% chance of commercial success (NPV15>0), which appears to be materially higher than current market expectations suggested by the valuations of listed small/mid-caps including AJL, IGas and Egdon. Our current P50 valuation of AJL stands at A$0.86/share.

AJ Lucas Group

Bitesize briefing – AJ Lucas Group

Edison TV: | Oil & gas | 20 Apr 2018

Sanjeev Bahl discusses AJ Lucas Group.

AJ Lucas Group

Dominant Bowland shale position

Initiation | Oil & gas | 09 Apr 2018

AJ Lucas offers investors exposure to the most advanced UK shale appraisal programme in the UK. Current activity is focused on a drilling campaign at Preston New Road where the company has approval to drill and test up to four horizontal wells. Prior to appraisal, which is aimed at reducing technical and economic uncertainty, we utilise a probabilistic approach to valuation estimating a 67% chance of commercial success for UK shale (NPV15 >0) with a net P50 risked value of A$0.92/share. At a group level, incorporating AJL’s operating business units and net debt, we derive a P50 (mid-case) valuation of A$0.86/share.