Thought I should put my mouth where my money is on ADX.
First thing to note is this is a speculative position, presenting real downside, but an asymetric upside - it wouldn’t be an ASX penny dreadful if it didn’t, right!
Big picture. ADX picked up some unloved assets a few years ago and the macro wheel is turning for them, which gives transformative potential if they execute their exploration and development program well (and with a bit of luck). Gas and oil in Europe was out of fashion prior to the Russian invasion of Ukraine, the EU was transitioning rapidly, propped up by Russian gas, no appetite for exploration in continental Europe when you can just get cheap Russian gas and then turf out the Russians once you have 'transitioned' away from gas. Fast forward to today and the ties with Russia are cut almost completely and probably permanently, the gas price in Europe is high and exploration is back on the agenda - and ADX has quietly been working up a decent exploration portfolio, applying a new geological model to some old assets and already had success with its Anshof 3 oil well. To prove how the wheel has turned, they now have other companies sniffing around their assets and have proven they can execute farm-ins with much larger companies to part-fund the exploration. A strategy that could help extend the runway and minimise dilution as they execute. It also provides a certain level of validation for the prospects - in that others are interested in buying in.
They are currently drilling the Anshof 2 appraisal well, which if successful would increase the proven reserves in the field 10x to 5mm barrels in the mid case, potentially higher. If successful I think this underwrites the current market cap of the company (~A$40m) and probably a bit more, ADX has shared some broker reports - for what they’re worth - that show it being worth approx double that.
Beyond Anshof, ADX has a number of smaller targets that could provide further economic runway, but they also have the far larger Welchau gas prospect. This is a risky play but potentially a multi-bagger, I like the prospect of being in the stock for both the drilling of Anshof 2 and Welchau - which is expected to spud in January - it currently does not have environmental approval to proceed, which would be a blow to the company if not granted. A mid case of ~800Bcf of gas is estimated, which could be worth a billion dollars or more - but to put this in perspective, they farmed down 20% of the prospect for about A$2m in drill costs - so it tells me something about the risk.
They’ve recently raised capital, which is of course never fun, but I now think with the money in the bank and the farm-ins already executed they should not need more capital prior to getting these results - definitely Anshof 2. I like that the most recent raising has included a SPP, which has an extended closing date that goes past the point in time where Anshof 2 should have reached its target and be confirmed as either a success or failure. In my mind, this gives the existing shareholders a free hit at significant upside here (albeit a fairly small portion, its only a A$1m SPP).
All of this focus is on their upper Austrian assets. They also have a few others, the Vienna basin mature assets (which are producing but barely breaking even and will include an abandonment liability) and some assets in Romania. I don't think either of these contribute much to the value of the company, although I like the prospect of Vienna basin for gas or carbon storage.
Overall my valuation is pretty coarse, if Anshof 2 and Welchau fail then there'll be more capital raisings and a lower value than today - although not worthless. If they succeed then there's big upside. Roughly I'd say 50m for Anshof (A$10/2P reserve), A$20m for Welchau, A$20m for all the other assets, but offset by corporate overheads. So all up about A$70m, or 17c on 400 shares.