Union Jack Oil – time for a binary bet on Wressle approval?

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With Union Jack Oil slipping 41pc since January, could now be the perfect time to take a punt on the firm having success at its long-delayed Wressle prospect?

In an update last month, Union Jack said that Edgdon, the operator of Lincolnshire-based Wressle, would submit a revised Wressle field development plan in May. The application will address points raised by the planning inspector in a failed appeal process.

Union Jack, which owns a 15pc stake in Wressle, was hit by North Lincolnshire Council’s decision to refuse planning consent for the field’s development last July and its subsequent rejection of an appeal in January. But now a second appeal decision is on its way, the binary bet on whether permission will finally be granted at Wressle looks worth re-visiting.

Looking at things logically, there should be a better chance that the partners will be more likely to meet the council’s requirements on their third try. Of course, there is no guarantee of this, but the partners appear to have taken some time to get things right since their last appeal failed. If they are successful, then it is likely that Union Jack’s share price will fly given Wressle’s strong prospects, which had previously generated a lot of excitement for the firm.

As a whole, the site has 14.2 million stock tank barrels of Gross P Mean oil initially in place across three reservoir sands – Ashover Grit, Wingfield Flags, and Penistone Flags. Of this, 2.15MM barrels are recoverable. The partners have formed an initial development plan across Ashover Grit and Wingfield Flags expected to contain gross 2P reserves of 0.65MMboe. Commercial oil production is expected to start at c.500boepd. Of these reserves, 0.1MMboe would be attributable to Union Jack and worth nearly $7m alone at current oil prices of $63.73/bbl – not including production costs.

Following the commissioning of the initial Wressle development, the partner companies will also look to progress Penistone Flags, which Union Jack expects to fund from initial production at the site. Penistone Flags has gross oil 2C contingent resources of 1.52MM stock tank barrels and 2 billion standard cubic feet of gas. Of this, a large 280MMboe would be attributable to Union Jack.

Furthermore, the Wressle field is deemed to extend into PEDL182, where Union Jack also owns a 15pc stake. The contains the drill-ready Broughton North prospect, which has gross un-risked mean prospective resources of 0.5MM stock tank barrels and 0.51bcf of gas across two reservoir sands, with the potential for more upside.

The potential on offer from Union Jack’s stake in Wressle does not seem to well covered by its current £4.4m market cap and 0.1p share price. These figures seem particularly under-valued given that the firm has another 11 onshore licence interests, no debt and a cash balance of more than £2m. Indeed, a brief look at the potential of some of Union Jack’s other prospects shows that it could look quite attractively priced even in the event of more delays at Wressle.

Most notably, it owns a 22pc stake in PEDL253, containing the previously-drilled Biscathorpe prospect. A well is planned here in mid-2018 with gross mean prospective resources of 14MMbbl and a 40pc chance of success.  Union Jack’s executive chairman David Bramhill has said the Biscathorpe prospect has a pre-drill value of £24m net to the company in a success case, significantly higher than estimated drilling costs of around £1m.

Additionally, Union Jack has a 7.5pc stake in PEDL143 containing Holmwood-1, a high impact exploration well with planning consent expected to be drilling this year. The prospect’s operator estimates that it holds un-risked gross mean prospective resources of 5.6MMbbls with a 50pc geological chance of success with further upside resource potential.

As a final example – details of further prospects can be found here – Union Jack also owns a 20pc stake in EXL294, the producing Fiskerton Airfield oilfield. Here, two workovers have completed, and production is now approaching 30bopd, and plans are in place to reprocess 3D seismic data to help identify new drilling opportunities in H1 2018.

Of course, there is always a flipside. If the firms are rejected once again at Wressle, then it may be worth investors considering that all of Union Jack’s opportunities are relatively similar- i.e. they are drill-ready and based onshore in the UK. If Union Jack cannot get things right at Wressle, then is there a risk of it encountering similar planning problems at its other sites?

The bottom line is that Union Jack has a whole portfolio of exciting opportunities and a great opportunity in Wressle if it can get past the planning stage. If it can make the most of all its assets, then it seems like there is a good chance of shares heading north from here.

The author was not remunerated to provide this bulletin and does not hold shares in the company


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