By Dan Flynn
Can Biscathorpe and West Newton boost Union Jack Oil further?
This week saw Union Jack Oil announce the beginning of drilling operations at its highly-anticipated Biscathorpe prospect. The news continued of a bull-run at the firm that began in December after a period of weakness. With Union Jack expecting Biscathorpe to take 30 days to drill while also anticipating progress at its new West Newton discovery, could shares have further to run from their current 0.12p?
After a period of strength following disappointment at its part-owned Holmwood prospect earlier this year, Union Jack’s shares sank from 0.1125p to 0.095p in November.
The firm faced a blow after an application for planning permission at its 27.5pc-held Wressle prospect in the East Midlands was once again rejected. The setback came despite Wressle operator Edgon Resources receiving a recommendation for approval from North Lincolnshire Council’s planning officer.
Edgon said it plans to appeal the decision without delay. It argues that the latest application addresses all of the concerns and issues raised in response to previously rejected submissions. Wressle contains a pre-drill gross mean prospective resource of 2.1MMbbls recoverable oil.
Following this, Union Jack has enjoyed a steady stream of strong news from two of its other core interests- West Newton and Biscathorpe. This has helped the business to resume its positive trajectory, with shares rising from 0.09p to their current 0.13p over the last month.
This bounce began at the start of December when Union Jack rose 6.8pc after completing its farm-in to a 16.7pc stake in the West Newton A-1 UK onshore gas discovery. This contains best estimate contingent resources of 189Bcf gas equivalent gross, equivalent to an NPV(10) of $247m with a 52.5pc rate of return. The prospect also houses a deeper oil exploration target with best estimate prospective resources of 79.1MMboe gross.
A drill-ready, conventional appraisal well is planned for the gas discovery Q1 2019. Union Jack said its existing cash resources would fund this. At the time, executive chairman David Bramhill said:
‘The completion of the West Newton Farm-in puts Union Jack in a stronger position to deliver growth in reserves, production and asset value while adhering to our principles of strict financial and technical disciplines.’
Union Jack’s shares enjoyed another lift several days later when Frazer Lang was appointed a non-executive director. Lang is also an executive director of the company’s commercial partner Humber Oil & Gas. Compounding this, well-known oil investor Christopher Williams was revealed to have taken a 4.9pc stake in the firm’s issued share capital. This has since risen to 7pc, correct as at 8 January.
Perhaps most notably, the last few weeks have also seen Union Jack report significant progress at its 22pc-owned Biscathorpe prospect. Also operated by Egdon, the structure is located in the proven hydrocarbon fairway of the Humber Basin. It was initially drilled and tested in 1987 by BP, who encountered 1.2m-thick, oil-bearing sandstone.
Egdon and its partners have been preparing a second well called Biscathorpe-2 for some time. This targets a mean prospective resource volume of around 14MMbbls oil with a 40pc chance of success. In the success case, the prospect will be worth around £24m net to Union Jack. Bramhill has previously described this as ‘transformational’ for the organisation.
Last month, Union Jack announced that the drilling rig for the well would mobilise in early January, with drilling completion expected in mid-February. The well is expected to take around 30 days to reach its target depth of around 2,100m below ground level. Then, earlier this week, the firm said drilling operations has begun, with Bramhill adding:
‘Biscathorpe is one of Union Jack’s near-term, high-impact projects and success here will be transformational for our Company. In addition to the defined structural closure, stratigraphic trapping, if present, could lead to significant upside for oil resources. We look forward to updating shareholders and the market with preliminary results from the well in early February 2019.’
Share price catalysts
Alongside the assets already mentioned, Union Jack owns stakes in a producing field called Keddington as well as fields called North Kelsey, Keddington, Dukes Wood, Kirklington. These represent different degrees of potential opportunity for the business. However, the likelihood is that Biscathorpe and West Newton will be the most significant potential share price catalysts this year.
Even after its recent rise, Union Jack’s market cap comes in at just c.£11m. Looking at the potential net value of the firm’s key assets – Biscathorpe could be worth £24m alone – this could have further to run.
One caveat is that it may be worth keeping an eye on the Union Jack’s cash balance later in the year. Cash came in at c.£1.8m at 30 June 2018, with little revenue generation and monthly admin expenses of c.£67,000. Meanwhile, the proceeds of £2.25m placing in October have been allocated to the West Newton acquisition and appraisal drill rather than as general working capital.
Regardless, Union Jack is likely to deliver two critical pieces of newsflow this quarter alone – the results of Biscathorpe-2 and the well at West Newton. If these go the right way, it will be exciting to see how the market reacts, especially against a backdrop of an improving commodities sector.
David Bramhill of Union Jack recently caught up with our friends at Proactive.
The author was remunerated but does not hold shares