Shares in United Oil & Gas (LSE:UOG) have more than doubled to 4.6p since the company- formed from a group of former Tullow Oil employees- stormed onto London’s junior market in July last year. After a middling few months that have seen its market cap drift slightly to £13.4m, the firm is preparing for a raft of high-impact newsflow across its oil and gas assets in Jamaica, Italy, and the UK. Here, chief executive Brian Larkin explains why he feels United’s strategy of acquiring interests in projects at every stage of the development cycle can provide investors with the best of both worlds.
Unexplored frontier
Since 2017, United has farmed-in to a 20pc stake in the Walton-Morant exploration licence in Jamaica. The permit, which is run by Tullow Oil, is already known to house a high-grade prospect called Colibri, which is estimated to contain more than 200MMbbls of gross unrisked mean prospective resources. Tullow carried out its first 3D seismic on the site in May to de-risk structures like Colibri and bring them into drill-ready status. The survey completed ahead of schedule at little cost to United and once the data has been processed the firms will decide on whether to continue drilling.
Larkin describes Jamaica as one of the last potentially lucrative oil frontiers to be explored in the world. Indeed, just 11 wells have been drilled across the country despite nearly all of these encountering hydrocarbons. As a result, he believes any successful drilling at Colibri could attract much interest in the license:
‘Walton-Morant is a great wildcat opportunity. Tullow first farmed into the licence in 2014 when we worked for them, so we knew it well and decided to farm-in ourselves last November. We could find ourselves drilling a well at Calibri in early 2020. If that is a success, it could open up the whole basin and as many as 20 sites with multi-million-barrel recoverable targets. Any major would be delighted to have that opportunity in its portfolio.’
Close to home
United also owns stakes in numerous UK licences at various stages of development. Notably, it holds a share in three onshore licences and one offshore licence in the Wessex Basin. The sites are located near Europe’s largest onshore oil field, Wytch Farm, which has produced more than 450MMbbls oil to date.
The first onshore licence in the area is PL090, where United owns a 26.25pc stake. PL090 contains a shallow field called Waddock Cross where a well is planned in early 2019, targeting production of more than 200bopd. It also owns stakes in licences called PEDL330 and PEDL 345, which Larkin expects to present follow-on exploration potential in the event of success at Waddock Cross.
On the offshore side, United owns a 10pc stake in licence P1918, located just south of Wytch Farm. The licence houses the Colter prospect, which is expected to contain gross unrisked prospective resources of 15mmbbls oil. However, Larkin says new mapping of an area to the south of the structure could increase this to 20MMbbls oil. Last month, authorities signed an Authorisation for Expenditure for Colter, marking one of the final stages of pre-drill planning ahead of a planned appraisal well in Q4 2018. United is responsible for c.£1m of the cost of the well, which will be its second since readmission last July.
Beyond the Wessex Basin, United has an option to take a 24pc stake in a North Sea licence called P2264. The permit contains the Acle prospect, which is targeting the prolific Permian Rotliegend reservoir. Although it is an exploration play, Larkin says the opportunity is low-risk because it is near many producing areas. Indeed, it has a c.40pc chance of success and gross unrisked recoverable prospective resources of 122Bcf, or 20MMboe. Larkin says United plans to seek out additional third-party interest at the licence alongside JV partner Swift Exploration ahead of drilling a well at the site next year.
Finally, in May, United was awarded two blocks in the UK Continental Shelf 30thOffshore Licensing Round. These North Sea sites house the Crown Oil Discovery, which is estimated to contain up to 16MMbbls of recoverable oil. Larkin said numerous parties have shown an interest in farming into Crown, and he hopes to move these discussions forward in the next six to 12 months. He adds that being awarded the permit marked a significant step forward for United: ‘When we listed a year ago we would not have been considered for a licence award, especially one for an existing discovery. A year later we have been successfully awarded one, and I think that is indicative of our progress as a business.’
Italian opportunity
The most developed asset in United’s portfolio is the Podere Gallina licence in Italy, where it owns a 20pc stake. This contains the Selva Gas field where a well called Podere Maiar-1 delineated and tested two high quality, gas-bearing reservoirs in January. With the results indicating a commercial discovery operator Po Valley applied to develop the site in May, and a decision on this is expected shortly.
The first phase of the plan will see the installation of a fully automated gas plant and this will be able to produce at a rate of up to 5.3MMscf/day. Larkin told us he expects to have first production from the well by early next year. However, he is most excited about the second phase of Selva’s development. Here, the companies will drill wells at the highly prospective East Selva prospect, which is expected to contain unrisked base-case recoverable resources of c.35Bcf. At roughly double the size of Podere Maiar-1, Larkin said the opportunity could be a potential ‘game-changer’ for United. The JV partners plan to acquire 3D seismic at the area in H2 2018 or early 2019.
Mini-major
With assets in different locations and development stages, Larkin hopes to offer something unique with United. He describes it as a ‘mini-major’ that avoids the ‘eggs in one basket’ approach taken by many junior resource players: ‘We have an asset in every stage of the life cycle, like many majors. I do not think this is very common for a business with a sub-£20m market cap. Many firms of our size pin all their hopes on one asset, but we have blended exposure to wildcat, exploration-type assets with more advanced positions. This means we can benefit greatly our exploration play works out, but are not floored if it doesn’t.’
With so many irons in the fire, he says it is difficult to predict how the United’s portfolio will look in the future: ‘All our assets have exit points along the way, and it will no doubt make sense to see some all the way through to production while divesting others. Our objective is to create as much value as we can in the share price. The bottom line is we need to prove a lot of our asset up further before we know what we are going to do with them. If you had an asset and were offered an amount for it today, you have to look at whether that amount could turn into a multiple before you get first production. We have to make these decisions on every asset as they develop.’
Regardless, the upshot of having lots of assets is plenty of potential sources of news flow. Indeed, Larkin tells us there is activity on every single one of United’s licences over the near-term He hopes this will reflect in the business’s share price, after a relatively flat start to the year:
‘Our shares have more than doubled since readmission, and a broker note puts our target price at around 14p a share, so there gives you an idea of the value offer here. As we develop the portfolio, we expect to see that reflected in our share price. Our schedule ahead over the next six to 12 months contains some super high impact news flow. Be it seismic completion in Jamaica, drilling a well in Colter or Waddock Cross, developing Selva and acquiring 3-D seismic for East Selva, or even activity at Acle or Crown.’
Larkin says United is also funded for its current workflow and does not plan to raise over the medium term. However, he adds that the business is always on the lookout for new deals: ‘I have a list the length of my arm of new deals that we can go and do tomorrow. The only limiting factor is our cash, so we have to be very selective. Of course, a number of these potential acquisitions of farm-ins could add significant value for our shareholders. Some of the other parties to whom we are talking to are potentially open to vending their assets into United in exchange for shares. This is because they see the potential value in marrying their assets within United’s hugely attractive portfolio and fast-tracking their upside together. As a standard list company it is not so easy to come back to the market, so the stronger the value of United’s paper the more potential upside for investors.’
Bringing it together
United boasts strong management and a portfolio of assets with a healthy amount of diversity in terms of both geography and progress. It is hard to think of many firms with a market cap of under £20m that can match it in this sense- but whether this translates into long-term success remains to be seen. With cash on the books and lots of upcoming work, it could be worth keeping an eye on United over the coming weeks and months.
