NOTE
I wrote the following stock summary report for my Substack Newsletter back in August this year so some information may be outdated. My notes include comments from Andrew when we shared a phone call together. For disclosure's sake, I am still watching from the sidelines and have not yet taken a position.
ADX Energy
ASX: ADX
Synopsis:
ADX Energy Ltd (ADX) is an oil and gas exploration and production company with a focus on Europe. The company has been listed on the ASX since 1987. The company’s headquarters are in Perth, Australia, however, has operations offices in both Austria and Romania. The 750bcf Welchau gas prospect is what most attracted me to this company.
Company History
2015 - Seismic campaign begins in Romania. Data review of Sicily reveals potential oil resources
2016 - Sicily project formation beings. Feasibility program of Romania
2017- Drilling targets identified in Romania
2018 - ADX Secures farm-out to fund the seismic and drilling program in Sicily. The moratorium in Italy causes activity delays. Farmout discussions for Tunisia. Operation planning for Romania
2019 - Purchase of current producing Austrian Zistersdorf & Gaiselberg fields. ADX becomes licensed to produce and explore in Romania. Appraisal well complete in Romania
2020- Seismic campaign over Austrian Zistersdorf & Gaiselberg fields. Independent assessment confirms resource reserves of Upper Austria. ADX exists in Tunisia due to low investor interest. Flow testing begins in Romania. Well performance was under expectations, ADX to monitor to see if the reservoir will clean up in the future
2021 - ADX upper Austria project acquired. An external appraisal is undertaken for hydrogen storage in the Austrian Zistersdorf & Gaiselberg fields. Permit extension in Romania. Evaluation of geothermal power generation opportunity in Austria. Farm-out secured for the Upper Austria project.
2022 - so far Oil and Gas discoveries in Upper Austria. Flow testing of Upper Austria. Upper Austria's license expanded to include exciting gas prospects. CR to accelerate Upper Austria oil field development.
Assets
Austria
ADX is just one of 3 production and 2 exploration operators in Austria.
Austria - Zistersdorf & Gaiselberg Fields
The Zistersdorf & Gaiselberg (Z&G) are located near Zistersdorf in the Vienna basin. On the 1st of October 2019, ADX acquired 100% of the oil fields for €4 million from RAG, one of the major producers in the country.
The current production rate from the Z&G fields is 285 BOEPD and is of high quality 27 to 33 API Crude. 1P reserves estimates are 1.19m BOE & 2P reserves estimates are of 1.85m BOE. The remaining production life forecast for the 1P and 2P cases are 2028 and 2033 respectively.
There are opportunities to expand production including:
- Redeveloping/overworking old discoveries
- Conducting infill drilling
- Drilling deeper into the proven yet undeveloped Flysch Zone. There are 50 potential drilling locations in Flysch
Since its discovery in 1937, the Z&G fields have produced 37.6 MMSTB of oil, 16.6 Bcf of gas, and 66.2 MMbbl of water. The oil currently produced is delivered by pipeline and sold to a local refinery at a small discount to Brent crude oil prices. Operating costs are estimated to be US$ 31 per barrel.
The Z&G fields have provided ADX with a modest cash flow greatly reducing the company’s burn rate. Though it must be said that the fields have had extremely varied production rates over the past few years as they are coming closer to depletion.
Hydrocarbon Storage Opportunity
ADX has been evaluating the opportunity to utilize already depleted Z&G field reservoirs for green hydrocarbon storage. Ideally suited reservoirs have already been identified which could have a max storage capacity of between 500-1000 GWh. ADX is looking to construct a pilot plant in 2023 which will have an estimated CAPEX of €6.5 million
In late 2020, ADX sign an MOA with Windkraft Simonsfeld AG which operates 91 wind power plants with some facilities being located close to the Z&G fields. WKS would generate hydrogen through their renewable generation sources and ADX would store the resource in their reservoirs.
Green Hydrogen is generated through electrolysis which is a process using renewable energy sources to split water molecules into hydrogen and oxygen.
While underground hydrogen storage in salt caverns is already operational, its application in porous reservoirs is yet to be proven. However, the European Union has established a €150-billion budget for “hydrogen” related grants and loans to be utilized between 2021 and 2027.
Austria - Upper Austria
At a later date, ADX also purchased the Upper Austria acreage from RAG and acquired state-of-the-art 3D seismic valued at over €90 Million. The large exploration acreage of approx. 6,247 km2 is covered with approx. 3650 km2 of modern 3D seismic.
The Upper Austrian acreage consists of 81 prospects with prior drilling having an ordinary success rate of 48% (10 out of 21 wells a success). The region hosts existing O&G infrastructure making the path to production relatively short as ADX doesn’t have to develop its own extensive infrastructure. The average dry hole cost of wells in the basin is estimated to be between EUR 3-5m.
ADX has identified the best 16 exploration prospects which have an accumulative best technical recoverable estimate of 72 MMboe and could see upwards of 1000 BOEPD a day. At current brent crude oil prices of US$110 this equates to $110,000 a day or $13.2m a quarter. It must be noted though to drill all 16 prospects would take a significant amount of time and capital.
One of these exploration prospects, Anshoft-3, had an oil and gas discovery earlier in the year. ADX has an 80% interest with ASX listed XST being the farm-in partner who funded 40% of costs for a 20% interest. Anshof-3 has a best technical case prospective resource potential of 6.6 MMBOE.
Flow testing in April produced water-free light crude oil (32° API) at approximately 132 barrels of oil per day. ADX is current advancing plans to bring Anshof-3 into production in Q4 2022.
ADX also plans to drill Oho (20.4MMboe) and Zam (14.6MMboe) within the next 12 months following farm-in agreements being reached. The Oho well, with a target depth of 4,125m and a dry hole cost of EUR 6.6m, Is geologically analogous with the Hoeflein field in the Vienna Basin which has approximately 80 mmboe 2P reserves. Drilling approvals and a ready-to-use well site are available, significantly shortening the time frame for drilling once finance is available.
Welchau Gas Prospect
The Welchau gas prospect is also located within the Upper Austrian acreage and has the best resource estimate of 750 BCF. The prospect is relatively shallow (approximately 2000m) and lies within tie-in distance to the gas pipeline network so it is quick to commercialize. The company is expecting to drill the prospect within 9 months however I am of the belief that it to take closer to 12 months.
The Welchau prospect has a relatively high chance of success for drilling given that a previous well in 1989 had successful discoveries in the same reservoir in a small downdip compartment relative to the larger much further up-dip of the Welchau anticline. The 1989 well confirmed gas discoveries in the shallow section by chance when aiming for a 5000 meters oil target. The well produced high-quality condensate rich gas:
- Maximum test rate of 100,000 Nm³/ day (3.5 mmcf/day)
- 16 days constant rate of 75,000 Nm³/ day (2.6 mmcf/day)
The Welchau prospect is analogous to the large anticlines encountered in Kurdistan and Iraq, which have recoverable reserves estimated in excess of 15 billion barrels of oil equivalent. Much like Mobil with IVZ elephant resource, in the 1990s there was no viable gas market or surrounding infrastructure at the time. Welchau has a potential gas column height in excess of 1000m with a proven column of approx. 400m. The well cost is estimated to be approx. €3 million.
Gmunden Geothermal Power Generation Opportunity
ADX has an agreement with Siemens Energy and RED Drilling to evaluate geothermal power generation in the Upper Austrian basin where there is proven geothermal potential.
The Gmunden assessment includes shallower gas targets as well as a deeper geothermal target which is analogous to highly successful geothermal developments in the Munich region. The geothermal potential has been assessed by ADX to be capable of delivering 15 to 20 MW of long-term continuous energy from a two-well development. Geothermal power generation in the appropriate geological setting is capable of providing potentially cheap, constant, and reliable carbon-free energy
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