Is there light at the end of the tunnel for junior Oil & Gas companies?
Recent weeks have seen oil prices tumble by more than 10pc as fears over the economic impact of a US/China trade war have pushed demand growth down to its slowest rate since the financial crisis. Such severe macro conditions have taken their toll on companies operating in the sector, with many hitting multi-month lows as investors seek out alternative opportunities in healthier looking parts of the market.
While this gloominess remains, Tuesday provided investors with an important reminder that oil prices can go up as well as down. Indeed, the black stuff rose by more than 3pc to $60.32 a barrel (Brent) after the US said it would remove some products from its China tariff list, easing global trade concerns. Here, we look at some of the junior UK oil stocks that could benefit if Tuesday’s rise evolves into a sustained rally.
Union Jack Oil
What is its share price?
0.305p
What is its market cap?
£36.90m
What does it do?
Union Jack mostly invests 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?
The business has enjoyed a sharp rise since an appraisal well at its 16.7pc-held West Newton prospect encountered a substantial hydrocarbon accumulation. 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).
Earlier this week, Union Jack announced that West Newton’s operator Rathlin Energy is expected to begin well test operations at the field imminently. This work, alongside further permitting developments at the firm’s Wressle licence, could generate further positive momentum over coming months.
UK Oil & Gas
What is its share price?
1.03p
What is its market cap?
£62.72m
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.
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?
UK Oil & Gas soared by a fifth last Friday after announcing that it had increased its position in Horse Hill 86pc by purchasing Tellurian’s 35pc interest for £12m. The company described the deal as ‘transformational’, adding that it will increase its Horse Hill net oil sales revenues, net reserves and recoverable resources by over 69pc. It will also give the firm full control over the forward Horse Hill drilling programme and production schedule, together with sole ownership of the Horse Hill oil field site lease. The polarising stock seems to attract praise and criticism in equal measures – who knows where it will go next?
Block Energy
What is its share price?
6.8p
What is its market cap?
£27.10m
What does it do?
Block is an exploration and production company focused on Georgia, where it currently has three licences close to the country’s capital city Tbilisi. This includes 100pc of the West Rustavi field, which helped the firm rocket in April when horizontally sidetracked well 16aZ recorded a test production rate of 1,100 bbl/d, more than three times its original estimate. The firm is pursuing a funded 24-month programme of additional sidetracks and gas appraisals to unlock West Rustavi’s proven reserves of 0.9MMbbls and contingent resources of 38 MMbbls and 608 BCF.
What’s the latest?
The firm has fallen considerably from the 17p high it hit when the results from 16aZ were released, most recently taking a 24.4pc hit on the news that production had resumed at West Rustavi. Investors were likely perturbed by the news that the well had been producing at an average rate of approximately 360boepd since testing began – well below the 1,100bbl/d previously quoted. That being said, the business also said it plans to ‘gradually [increase] production to establish a sustainable flow rate as the well cleans up’- so this may have been an over-reaction.
The next big step for Block will be the drilling of well 38Z at West Rustavi, which the company announced it was preparing for last week. If the well can replicate the initial success of 16az, to which it is analogous, adjacent, and updip, then it will be exciting to see where Block’s shares go next.
Eco Atlantic Oil & Gas
What is its share price?
111p
What is its market cap?
£196.81m
What does it do?
Eco has a strategic portfolio of offshore projects in Guyana and Namibia in partnership with major oil companies like Total and Tullow Oil. Most notably, the company holds a 15pc working interest in the 1,800km2 Orinduik offshore block in the shallow water of the prospective Guyana-Suriname basin. This area is adjacent and updip to ExxonMobil’s 13 ‘world-class discoveries’ on the Stabroek Block, where recoverable resources are estimated to be over 6 billion barrels of oil and first production is due by 2020.
What’s the latest?
Those who were holding Eco before the 12 August will currently be sitting on a nice profit. That day saw the firm more than double after revealing that the Jethro-1 exploration well drilled at Orinduik had hit 55m of net high-quality oil pay in ‘excellent’ lower tertiary sandstone reservoirs. These findings support recoverable oil resources, and the well has now been cased ahead of further evaluation to determine the appropriate appraisal activity.
Perhaps the most exciting part of Monday’s development in terms of Eco’s future was its partner Tullow’s claim that the discovery ‘significantly de-risks’ other Tertiary age prospects within Orinduik. Among these is the upper tertiary Joe prospect, where drilling will begin later this month once work has finished at Jethro-1. Joe is a 150MMboe Upper Tertiary target with a 43.2pc chance of success, as estimated in a recently published report over Orinduik by Gustavson Associates.
Given that Eco is funded for work at Orinduik and plenty of prospective targets remain – the block’s prospective resources at an impressive 2.9 billion BOE across ten leads – the firm’s recent rise could just be beginning.
RockRose Energy
What is its share price?
1,690p
What is its market cap?
£231.63m
What does it do?
Rockrose boasts a portfolio of production and development assets, principally in the UK and Dutch areas of the North Sea. The firm’s production currently sits at more than 20,000boepd from reserves of 63MMboe, and it claims to be equipped to do business profitably at sub-$50/bbl oil.
What’s the latest?
The business soared by 159.9pc at the end of last month when it returned from a suspension that was triggered in February by its purchase of Marathon Oil for $95m. The deal added around 28.4 million boe to RockRose’s 2P reserves as well as approximately 11,000 boepd of production. The deal really strengthened RockRose, and it continues to boast a healthy cash balance of around $370m post-acquisition. It will be exciting to see where the firm takes its assets next now that it has more power under the hood.
