News & Analysis

Is Union Jack Oil primed for a re-rate as summer catalysts approach? (UJO)

12 Jun 2018 | by: Richard Mason

Despite rallying 13pc on Friday to 0.12p, Union Jack Oil (LSE:UJO) remains considerably below its 0.17p share price at the beginning of the year. With the drilling of a well at its 22pc-owned Biscathorpe prospect on the horizon and progress finally starting to be made at the long-delayed Wressle field, is the business primed for a turnaround?

The big news for Union Jack last week was its acquisition of an additional 12.5pc stake in the PEDL180 and PEDL182 licences, which contain the Wressle Discovery and Brough North Prospect, for £1.04m. This brings the business’s total stake in the field to 27.5pc, with the company adding that it has also increased its reserves and resources base at Wressle by 83pc to more than 855,000boe. Union Jack’s executive chairman David Bramhill said that Wressle is expected to generate more than 137 barrels of oil per day net to Union Jack once it begins production, transforming the firm’s financial position.

The acquisition follows the news in April that that Egdon, the operator of Lincolnshire-based Wressle, would submit a revised field development plan for the site in May.  The application will address points raised by the planning inspector in a failed appeal process.

Union Jack was hit heavily by North Lincolnshire Council’s decision to refuse planning consent for Wressle’s development last July and its subsequent rejection of an appeal in January. It has struggled to recover since.

Many investors will, therefore, be hoping that the Wressle partners have learned from the mistakes made in their last two applications and will meet the council’s requirements on their third try. With all these factors in mind, it could be well worth re-visiting the binary bet on whether permission will finally be granted – Union Jack’s shares could significantly re-rate if it is.

Beyond Wressle, Union Jack is planning to drill a well at Biscathorpe this Summer, targeting a mean prospective resource of 14MMbbl with a 40pc of success. Bramhill has said the Biscathorpe prospect has a pre-drill value of £24m net to the company in a success case. This is significantly higher than net estimated drilling costs of around £1m and far exceeds Union Jack’s current £6m market cap.

Things look good for the business on the geopolitical side too. Last month, the UK government announced a host of measures aimed at supporting the development of Britain’s shale gas industry leading Union Jack’s shares to bounce by 8.3pc.

Union Jack owns a stake in onshore UK licence PEDL201, which holds a shale area determined to contain approximately 5.4Bbbl/oil and over 2.7Tcf/gas. In May, the business and its commercial partner Humber Oil & Gas each announced an investment to increase their interest in PEDL201 to 16.25pc. The two firms also purchased a 12.5pc interest in PEDL181, located in the Humber Basin and expected to contain a prospective shale reserve.

With two significant catalysts on the horizon and the renewed support of the UK government, this summer could really see Union Jack come into its own. With stakes in numerous additional UK licences beyond Biscathorpe and Wressle, its upside could extend far into the future.

Author: Daniel Flynn

Disclosure: The author does not own shares in the company mentioned above, Digitonic Ltd (and our owners, directors, officers, managers, employees, affiliates, agents and assigns) are not responsible for the content or accuracy of this article. The information included in this article is based solely on information provided by the company or companies mentioned above.

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

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