Oil & Gas Summer Review.

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Which firms will benefit if the oil prices continue to rise?

Oil prices rose sharply last week after attacks on two oil tankers in the Gulf of Oman stoked concerns of reduced crude flows through one of the world’s key shipping routes.

According to Reuters, the attacks near Iran pushed oil prices up by 4.5pc last Thursday, halting a price slide over recent weeks driven by concerns around global demand and US/China relations. On top of this, market participants are also awaiting a meeting between OPEC and other producers, including Russia, to decide whether to extend a production cut agreement that ends this month.

If oil prices continue to rise, then there are a wide variety of companies listed on London’s junior markets operating all around the world that will benefit. Here, we’re looking at several examples.

(All prices quoted correct as of 19 June 2019)

Union Jack Oil

What is its share price?

0.21p

What is its market cap?

£21.59m

What does it do?

Union Jack’s investment strategy has a heavy emphasis on investing in late-stage exploration projects where planning consent has been approved for well drilling. It also acquires minority production working interests in assets based onshore and offshore UK. The firm holds many positions, with notable examples including Biscathorpe, Wressle, Holmwood, and West Newton.

What’s the latest?

After a weak start to the year thanks to disappointment at Biscathorpe and ongoing delays at Wressle, the business has enjoyed a sharp rise this week thanks to success at West Newton. An appraisal well at the East Yorkshire-based asset, in which Union Jack owns a 16.7pc stake, encountered a substantial hydrocarbon accumulation with a significant liquid component identified from core and logging data.

The well was targeting a gas prospect that has been assigned best estimate contingent resources of 189Bcf of gas equivalent of 31.5MMboe gross. The gross NPV(10) for West Newton’s gas discovery alone is $247m, with a 52.5pc return on revenue. This does not include upside from an underlying oil exploration target called Cadeby Reef that has been assigned Best Estimate Prospective Resources of 79.1 million boe (gross).

Union Jack, which described this week’s result as ‘potentially transformational’, said West Newton’s operator Rathlin is now working to secure planning permission to carry out an extended well test in Q3.

 

UK Oil & Gas

What is its share price?

0.97p

What is it’s market cap?

£60.83m

What does it do?

UK Oil & Gas has a portfolio of direct and indirect investments in eight UK onshore exploration, appraisal, development, and production assets in Britain’s Weald and Purbeck-Wight basins. It is perhaps best known for being the largest investor in the Horse Hill oil field in Surrey, commonly referred to as the Gatwick Gusher, where it holds a 50.6pc majority stake.

Following significant delays, last year saw the Horse Hill partners declare the commercial viability of Portland oil at the field. Since then, the businesses have been working to move the field from ongoing test-based oil production into permanent production by end-2019.

What’s the latest?

A one-time AIM darling, UK Oil & Gas appears to have lost its hold over investors, with share declining steadily over 2019 so far. Even the news earlier this month that total aggregate Portland and Kimmeridge test oil production had reached a ‘landmark’ 50,000bbls was unable to coax a significant reaction from the market.

 

ADM Energy (ADME)

What is its share price?

24.6p

What is it’s market cap?

£11.25m

What does it do?

MX’s principal asset is a licence called OML 113, where it owns a 5pc interest. The permit covers 835km2 offshore Nigeria near the Benin border and holds the Aje field, alongside numerous exploration prospects. Aje was discovered in 1997 and contains multiple oil, gas, and gas condensate reservoirs in Turonian, Cenomanian, and Albian sandstones. The field is currently producing at a stable rate of around 3,150bopd. Of this, 157.5bopd is net to MX.

What’s the latest?

This year has seen ADM change its name from Zenith Energy and, most recently, announced the resignation of its chief executive and the appointment of Shaikh Ahmed Bin Dalmook Al Maktoum as its new chairman. Al Maktoum, a billionaire member of Dubai’s ruling Al Maktoum family believed to be one of the world wealthiest royals, will ‘help leverage his network and bring new opportunities and contacts’ to ADM. Whatever that means, the backing of a such an influential figure is either likely to support the firm in its ongoing efforts to bolster Aje or, as could more likely, see it enter entirely new assets.

 

Zenith Energy (ZEN)

What is its share price?

3.05p

What is it’s market cap?

£9.9m

What does it do?

In 2016, Zenith entered a 25-year rehabilitation, exploration and production sharing agreement (REDPSA) with Azerbaijan state oil company SOCAR. It owns an 80pc participating interest in the three contingent oilfields comprising the REDPSA area – Muradkhanli, Jafarli and Zardab. All-in-all, the fields boast plenty of upside potential, with independently assessed 2P reserves of 31.7MMboe. This translates into an NPV(10) of $469m thanks to low all-in average production costs of $19/bbl.

What’s the latest?

The company has spent this year working towards the completion of several operation objectives. These include maximising production from 34 active production wells through workovers, identifying bypassed pay zones in shut-in wells, and isolating water sources to reduce water cut. Elsewhere, Zenith also plans to spud a new well using its drilling rig to appraise the large Upper Cretaceous formation structure in the Muradkhanli field.

Finally, and perhaps most critically, it expects to perform two well-deepening operations to test the unexplored Upper Cretaceous formation in the Jafarli field. Speaking to TMS shortly after raising £1.02m in April, Zenith said investors could expect the well-deepening programme to start imminently.

 

Hurricane Energy (HUR)

What is its share price?

55.2p

What is it’s market cap?

£1.1bn

What does it do?

Hurricane focuses on the discovery, appraisal, and development of hydrocarbon resources from naturally fractured basement reservoirs. The business’s strategy is to produce from fractured basement reservoirs for the first time in the UK’s Continental Shelf, west of Shetland, where it has a portfolio of contiguous licences. The area is a proven petroleum basin with numerous large producing oil fields including Clair, Foinaven, and Schiehallion.

What’s the latest?

This year has seen Hurricane take huge steps forward in its delivery of the Lancaster Early Production Scheme (EPS) for its Greater Lancaster Area (GLA), comprising the Lancaster and Halifax fields. The scheme involves a two well tie-back to the Aoka Mizu floating production storage and offloading (FPSO) unit and targets 17,000bopd production. At an operating cost of $22/bbl, this is expected to generate more than $200m of operating cash flow p.a. based on $60/bbl brent.

Critically, it is also designed to provide long-term production data to enhance Hurricane’s understanding of reservoir characteristics, informing ways to plan for full field development on the GLA licences. Indeed, the firm believes that there is a chance that Lancaster and Halifax may contain a single ‘supergiant’ field and has said that the GLA has the potential to boast 2P reserves of more than 100MMboe in H1 2020.

In a milestone development, Hurricane announced last month that hydrocarbons had been introduced into the Aoka Mizu FPSO’s process system. Earlier this month, the business went on to announce that Lancaster had become the UK’s first producing fractured basement field after the FPSO’s start-up phase completed with a 72-hour production test. The combined flow from both wells during this test period reached and maintained the planned production rate of 20,000bopd. Finally, earlier this week, Hurricane announced that it had generated its first revenues after selling its first cargo from Lancaster to BP Oil International.

 

Nostra Terra Oil & Gas (NTOG)

What is its share price?

1.9p

What is it’s market cap?

£3.92m

What does it do?

Nostra’s portfolio consists of development and production assets in the prolific Permian Basin in West Texas, East Texas and a 50pc working concession in Egypt.

What’s the latest?

The big news for the company this year has been its 100pc working interest in the Mesquite asset located on the Eastern Shelf of the Permian Basin with estimated recoverable reserves of 2.4mmbbls over 1,384 net acres. At the end of April, Nostra revealed that it was in advanced discussions regarding a new 160-acre lease opportunity at Mesquite. The firm said the lease would give it an immediate opportunity to drill a half-mile horizontal well to prove up and increase its overall proven and probable oil reserves at the site.

Meanwhile, Nostra is continuing to look at options for advancing Mesquite, having previously said that it has already received numerous unsolicited approaches about the asset from industry partners. Another significant development for the business came in March when City stalwart Miton Group took a 10.1pc stake in its share capital as part of a placing.

Last month, Malcy spoke to IGTV to discuss the outlook for oil in 2019



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