• Cavendish initiates coverage of Hartshead at 12.3c, 356% higher than its current share price of 2.7c
  • Current market conditions are well suited to a material project developer like Hartshead
  • UK gas prices are still trading at a premium to the 10-year average
  • Broker says Hartshead is trading at a substantial discount to both its peer group and a number of other valuation metrics


Hartshead’s development ready gas fields and the high degree of de-risking brought about by the RockRose farm-out deal are reason enough for UK brokerage Cavendish to initiate coverage with a 12.3c price target.

The company’s UK Southern Gas Basin assets consist of four existing gas discoveries and 14 identified prospects that are perfectly positioned to meet the UK’s goal of reducing its dependence on imported gas.

There is always an element of uncertainty involved in new oil and gas developments, but the Phase 1 development is focused on bringing the previously producing Somerville and Anning fields, which have combined proved and probable reserves of 301.5 billion cubic feet of gas, back online.

Six production wells will deliver production peaking at about 140 million standard cubic feet per day (MMscf/d) from 2025 into two wireline capable Normally Unmanned Installation platforms that will in turn transport gas to Shell’s infrastructure for onward transportation and processing for sale.

The gas assets proved attractive enough for Hartshead Resources (ASX:HHR) to secure RockRose Energy as a farm-in partner, with the North Sea oil and gas producer paying a gross consideration of $196.3m in return for a 60% of the project.

With RockRose meeting the company’s equity requirement, the agreement substantially de-risked the Phase 1 development.


Everything is adding up

Cavendish has initiated coverage on the Hartshead with a target price of 12.3c, well above its current share price of 2.7c.

It noted that the farm-out with RockRose – a technically capable and well-funded partner – not only de-risked the Phase 1 development, it also provided both technical and commercial validation of the development and implies a material uplift in value.

Cavendish added that with energy security a key priority for the UK Government and investment allowance available to offset the Energy Profits Levy (EPL), current market conditions are well suited to a material project developer like Hartshead.

“Hartshead has a material 40% operated interest in five blocks in the Southern North Sea Gas Basin, covering four existing gas discoveries and 14 identified prospects,” the broker said.

“All four existing gas discoveries have been materially derisked through existing penetrations, flow tests and in the case of the Anning and Somerville fields, a multi-year production history.

“It is estimate that 6% and 11% of the initial gas in place has been recovered at Anning and Somerville fields, respectively, which compares with an average Southern North Sea Gas Basin recovery factor of 75-80%.

“A combination of higher gas prices and spare capacity in the remaining infrastructure has made the economics of these stranded assets now highly attractive, especially when developed as part of Hartshead’s multi-phase aggregation strategy.”

The broker pointed out that while UK gas prices have fallen from its 2022 high, the current forward remains elevated and significantly in excess of the 10-year historical average of 83p per therm (100,000 British thermal units or just under 100 cubic feet of gas).

“At first gas in 2025, the average UK NBP gas price is currently 117p/therm – a circa 29% premium to the 10-year average. Looking further ahead the UK NBP (national balancing point) gas price continues to trade above the 10-year average at 102p/therm in 2026 and 87p/therm in 2027,” it added.

As such, Cavendish says Hartshead is trading at a substantial discount to both its peer group and a number of other valuation metrics.

“Even using the recent implied RockRose transaction valuation, Hartshead is trading at a significant c62% discount to the A$205.3m gross total consideration,” it added.


Near-term catalysts

Cavendish says that Hartshead continues to be extremely active as it advances towards first gas in 2025.

“The Phase 1 development continues to present a highly unique and compelling development opportunity for shareholders with numerous near-term milestones, including the execution of debt financing and FID in Q4/23E.”

Other catalysts include the potential to increase the company’s portfolio through the UK’s 33rd Offshore Licensing Round and first gas from the Phase 1 development in 2025, which would allow the company to play its part in the UK’s energy security and energy transition.



This article was developed in collaboration with Hartshead Resources, a Stockhead advertiser at the time of publishing.


This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.