By Justin Reynolds
Fully funded and with three major projects positioned to deliver growth in reserves production and asset value plus a market cap of less than £30m the future looks bright for Union Jack Oil…
The long-term impact of the pandemic on the oil and gas industry is still unclear. But the downturn has presented near-term opportunities for some exploration and production companies.
One is AIM-listed Union Jack Oil (UJO), which has used its strong financial base to further develop an impressive portfolio of prospective assets. The company has interests in 13 licences clustered in the East Midlands, Humber Basin and East Yorkshire. But it is focused on three flagship assets.
The best known is the PEDL183 licence at West Newton, north of the Humber. The field’s A-1 and A-2 discoveries, on-trend with the offshore Hewett gas complex, indicate the presence of 211.5 billion cubic feet of gas, and 146 million barrels of oil. Evaluation of the A-2 open hole data estimates an oil column of approximately 45 metres, underlying a gas column of some 20 metres. Union Jack has a 16.665pc interest in the asset, the same share as Humber Oil & Gas, with Rathlin Energy UK, the operator, holding 66.67pc.
The project has been embroiled in the controversy that the development of a major onshore oil field relatively close to urban areas might be expected to generate, but all the necessary planning approvals have been secured. A carbon intensity study concluded earlier this spring by Gaffney Cline & Associates rates the project as AA for carbon intensity, significantly lower than the UK average and other onshore analogues, making West Newton as environmentally sensitive as any hydrocarbons project on the British mainland can be.
Union Jack also has a significant stake in the less well known but equally significant PEDL180 and PEDL182 licences at Wressle, on the western margin of the Humber Basin. Earlier this month the company increased its interest in the licence to 40pc: the remaining 60pc is shared with operator Egdon Resources and Europa Oil & Gas Limited. The increased stake, purchased from Humber Oil & Gas for £500,000 from the company’s cash reserve, takes Union Jack’s share of the field’s 2P reserves and 2C contingent resource base to 1.2 MMboe.
First commercial oil is anticipated during H2 2020, with the target flow set at a constrained rate of 500 barrels a day, 200 barrels of which – following the deal – are net to Union Jack. The project has set an estimated break-even oil price of US$17.62 per barrel.
Like West Newton the Wressle project has encountered opposition, manifested in this case through a long running planning dispute with North Lincolnshire Council. The issue was finally resolved in the project’s favour in January, with the granting of planning consent and the award of a compensatory payment of some £400,000 to be shared between the three partners.
Union Jack has also recently increased interest in the PEDL253 licence at Biscathorpe, south of the Humber, a field on-trend with the Keddington, Saltfleetby and the Louth and North Somercotes gas prospects.
The licence disappointed last year when drilling at the Biscathorpe-2 well failed to encounter the targeted Basal Westphalian sandstone formation. But subsequent 3D seismic analysis of the asset found that a a sandstone reservoir exists that can can be drilled using a side-track from the existing Biscathorpe-2 well. A detected Dinantian Carbonate oil column offers the possibility of a further commercially viable play.
Studies estimate that Biscathorpe may yield 3.95 MMbbls of oil, with an upside case of 6.69 MMbbls, offering a full cycle economic valuation of £55.6 million with a US$18.07 per barrel breakeven oil price. Just last week Union Jack increased its interest in the licence to 30pc, with the operator Egdon Resources holding 35.8pc, Montrose Industries 19.2pc and Humber Oil & Gas 15pc.
The company has a few other revenue generating resources, notably 55pc and 20pc interests in the PEDL005(R) and EXL294 licences containing the Keddington and Fiskerton Airfield oilfields respectively. Combined production from these two assets averages 50 barrels of oil per day.
Union Jack has been in a position to increase assets due to a robust financial position. The company undertook a placing of £5 million in November 2019 to fund this year’s programme, and at the beginning of May had a cash balance of more than £5m. All current drilling and testing commitments are fully-funded, but just over £1 million is due on first oil at Wressle to Calmar LP in line with prior transaction obligations.
Regarding markets, Union Jack intends to serve the Humber chemical and energy cluster, currently contributing some £6 billion to the local economy. These industries include petrochemicals, commodity and speciality chemicals, composite materials, pigments and paints, wind turbines and pharmaceuticals, and other associated businesses together employing around 15,000 people. The company says petroleum remains fundamental to the sector, including for the manufacture of items such as wind turbines that rely upon composite materials comprising hydrocarbons.
Union Jack’s share price has steadily increased in recent weeks in light of its positive news flow, but are still only 0.2p. With a market cap of less than £30m, the company looks well placed for growth should any of its major prospects come good. Union Jack’s eye for a deal has turned it into a good bet: it might be a good prospect for investors still seeking returns from the oil and gas sector.
We look forward to seeing you at the next upcoming TMS event(s)…