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Union Jack Oil Plc

Union Jack Oil is a relatively new oil & gas company, small but with good potential.  Unlike the explorers of old, waving the Union Jack whilst conquering new lands, this explorer is seeking to find treasure on home soil.

The company has taken a conservative approach of spreading their risk on 4 different prospects offering diversity rather than a single flip of a coin. The best part is, unlike most small explorers out there, Union Jack already has the cash to back it.  They have partnered with a larger, established local operator, Egdon Resources plc (LON:EDR) market cap circa £32m, which means Union Jack is able to keep its overheads low by not carrying associated costs of being an operator.  Not a bad way for a small company to get started.

The Assets

License Name Working Interest Resources(net to UJO) Cost(net to UJO)
PEDL201 Burton on the Wolds 10.0% 0.48 Mmbl £0.2 million
PEDL180 Wressle 8.33% 0.18 Mmbl £0.3 million
PEDL253 Biscathorpe 10.0% 1.10 Mmbl £0.5 million
PEDL241 North Kelsey 10.0% 0.99 Mmbl £0.4 million
Total 2.75 Mmbl £1.4 million

It has been a short 1 year and 3 months since they listed on AIM.  They are funded to drill every single asset within the portfolio, and plenty of dosh remaining to expand the portfolio further.

The initial well at Wressle has already been drilled and logged, where the logs are reportedly good.  The operator plans for completion and flow testing very soon, per previous RNS.  They’ll likely be using the same rig that was just released from Burton.

They mentioned possibly another well to be drilled yet this year.  While it would be nice to see that happen, always best not to count on it.

The Biscathorpe and North Kelsey are planned to drill during the first half of 2015.  Each of these prospects is twice the size of the Burton, ie. The biggest and best is yet to come.

The Opportunity

Brent Crude has dropped approximately 25 per cent over the past 3 months, while only a week ago Union Jack announced the Burton on the Wolds well would be plugged & abandoned (aka: dry or non-commercial).  UJO dropped 35 per cent on the news (-45 per cent from recent closing highs of .40p).  UJO is now trading circa 0.23 pence.  Recent placing was 0.30 pence and the company was oversubscribed.   More funds have been offered for the company yet they were comfortable enough to turn it away.

Today we’re in a market of trying to determine which companies will last and grow, opposed to the rock and roll johnny come quickly’s.  The current share price has them grouped as the latter when in our belief is the former.

During the first year the company lost £714,000.  The bulk of this went toward listing fees and other costs that won’t be repeated.  During the most recent 6 months the burn rate was £221,000.  So for the next 12 months (1 July 2014 – 31 June 2015) the company will burn £442,000.  Cash position per last financials was £2,400,000 however post reporting they raised another £2,193,200 (gross) via placing and some warrants being exercised.  Assuming they paid no more than a 6 per cent commission for the placing that would add another £2,073,000 to the coffers.  With a market cap of £5.8 million they are trading at a small premium to cash of £4.5 million.

£2,406,865           – Cash (end 30 June 2014)

£2,073,000           – Additional cash post-reporting

£4,479,865           – Total cash

-£441,546             – 12 month overheads (end 30 June 2015)

-£1,400,000         – CAPEX (existing assets)

£2,638,319           – Cash Reserves

What will Union Jack do with the remaining cash?  The company already stated that they plan to join in with the UK’s 14th Onshore Round, this round closed just a couple weeks ago.  With all the buzz around the key words “unconventional”, “shale”, and “fracking” the herd will be headed that direction. Union Jack’s current assets are not “unconventional”.  If they successfully avoid the herd then they will be awarded more licenses.  There is no bonus (no acquisition) fee required once awarded, only the work program they plan.  Considering their cash reserves are more than 2x what they are spending on the current 4 licenses they could end up with new assets that would be on the order of 3x their current assets.

The Conclusion

The next result to look forward to is on the Wressle prospect.  Given the size and cost a small producer would be a success.  The bigger prizes will be the next two prospects.  That means we have 3 new wells, all funded, to look forward to within months. These could make UJO cash generative, and that’s just the beginning.  At that point they have cash in the bank and are clearly on the hunt for additional assets.

The stock is way oversold.  This is a nice little gem that won’t remain hidden for long.

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