Hartshead Resources initiated by MST Access with a valuation of 10.3 cents per share
Hartshead currently has a development portfolio of 354 billion cubic feet (Bcf) of discovered 2C contingent resources in the UK’s Southern Gas Basin.
Hartshead Resources NL (ASX:HHR) recently recorded a 43% increase in gas volumes within its Viking Wx gas field, substantially boosting the capacity associated with its Phase 1 assets in the UK’s Southern Gas Basin.
MST Access has initiated coverage on Hartshead with a valuation of 10.3 cents per share (current share price: 2.6 cents).
The valuation is based on the blend of MST’s Phase 1 project valuation at first gas (10 cents) and a valuation (11 cents) based on an exit multiple for a blended portfolio of 2C contingent resources and 2P reserves of ~US$5 per barrel of oil equivalent.
The following is an extract from the initiation report:
Hartshead Resources (HHR) is an ASX listed company aiming to be a new entrant gas developer in the United Kingdom (UK) North Sea with a proven management team. Its small gas pools aggregation strategy aims to enable the multi-phased development of resources in a market which is short of gas.
The Southern Gas Basin (SGB) has a central role in the UK’s energy transition.
Domestically sourced natural gas has ~half the average emissions intensity of imported LNG thus making it important in achieving the UK’s 2050 net zero emissions target. Combine that with low storage capacity, a decline in existing North Sea gas production and a reliance on gas imports, UK gas pricing should be strongly supported going forward. The UK natural gas price is currently ~240 pence/therm versus the 10-year average of ~50 pence/therm. Assets in proven basins
HHR currently has a development portfolio of 354 billion cubic feet (Bcf) of discovered 2C contingent resources in the SGB. It is currently progressing the Phase 1 assets (Victoria and Viking-Wx fields with 2C contingent resources of 217 Bcf through to a field development plan (FDP) and the conversion of the 2C contingent resource to certified 2P reserves. The Phase 1 asset development is targeting preliminary FDP in 2Q 2022 with first gas in late 2024.
M&A activity in the SGB has been high
The liquid nature of North Sea Oil and Gas projects in terms of both asset and corporate transactions has been key to attracting new entrants and capital into the area. Since 2019 there has been 55 UK North Sea M&A transactions at an asset and corporate level. The exit multiples for blended 2C and 2P contingent resources have ranged from US$4 to US$6 per boe. At the above exit multiples for HHR’s Phase I assets (2C + 2P of 217 Bcf we get an exit valuation of ~US$150m to ~US$225m (A$0.09 to A$0.13 ps).
Experienced management team
HHR has put together an experienced team that has a seasoned skill set including subsurface, engineering, commercial, and health, safety, environment and quality (HSEQ) experience. Members of the team have been involved in the management of a number of successful SGB projects through to exit, including the Highland Energy and Caledonia Oil & Gas projects. Both were in both in the SGB and exited with the same value drivers as HHR.
Valuation
We initiate with a valuation for HHR of A$0.103. Our valuation is based on the blend of our Phase 1 project valuation at first gas (A$0.10) and a valuation (A$0.11) based on an exit multiple for a blended portfolio of 2C contingent resources and 2P reserves of ~US$5/boe.
