The slightest glance at the Share Price chart for Jersey Oil and Gas PLC (LSE:JOG) reveals an extremely exciting, and at times, terrifying 18 months for shareholders. A company-transforming Farm-out to Statoil in October 2016 was followed by failure at the first drilling of Verbier in the North Sea a year later. Initially, it appeared the game was over for the prospect but then a successful drill of a sidetrack well saved the story in October 2017.
Farm-out to Statoil
Continuing our series of highlighted stocks for the new year is another oil play, Jersey Oil and Gas. Back in August 2016, Jersey Oil announced alongside its co-venturer CIECO Exploration and Production UK, that it had reached a farm-out agreement with leading multinational, Statoil. Jersey Oil would retain 18% working interest in the P2170 license alongside, CIECO’s 12%, giving Statoil 70% and operator status. In return, Statoil paid Jersey Oil $1.2 million and agreed to fund the first $25 million towards the initial exploration well.
Disappointing news of the drill landed in September 2017, and at the time it was announced that drilling of a sidetrack well seemed unlikely. Fortunately, after analysis of the drill data, it was decided to proceed with the sidetrack well drill.
In the announcement RNS of the success at Verbier, Jersey Oil and Gas stated that the ‘Initial Operator estimates of gross recoverable resources associated with the Verbier discovery are between 25 and 130 million barrels of oil equivalent, with a minimum proven recoverable volume in the immediate vicinity of the wellbore of 25 million barrels of oil equivalent’.
I particularly like the latter part of that statement but that is not the full story by any means. Jersey Oil holds an 18% working interest of the whole P2170 license which includes not only Verbier but also the Cortina and Meribel fields.
In its latest corporate presentation released in October, the company estimates Gross recoverable resources from P2170 ranging from a low case of 70 MMboe to a high case of 272 MMboe. Suggested potential Net Asset Value (NAV) of these prospective resources is estimated at Low/Mid/Upside cases of £83.7m/£130.2m/400.5m respectively. The figures come out at £15m, £23.4m, and £72.1m attributable to Jersey Oil’s 18% share.
The company’s Market Cap is currently £43.66m at a share price of £2. This seems about right, assuming a mid-case scenario with the resources yet to be proven-up and a cash balance of over £20 million. But the potential for value growth on de-risking is substantial, with a 2-well Appraisal program expected mid-2018.
Fundraise and potential acquisitions
Jersey Oil’s healthy cash balance was largely a result of a fundraising, in which it raised £20m at a placing price of £2. The proceeds are expected to be used to fund the Verbier appraisal program, exploration drilling at Cortina, and to shore up the balance sheet ahead of further potential acquisitions.
The company states in its October Corporate Presentation that it is evaluating a number of live acquisition targets with reserves ranging from 2 to 24 Million Barrels of Oil (MMboe), and 2018 production ranging from 1000 to 3800 Barrels of Oil per Day (bopd).
This fuels further interest in the company which appears to have a capable and ambitious board at the helm, based on its performance so far. Notable Institutional investors, Legal & General, and Schroders may well agree, with both firms taking notifiable positions in the company holding 6.87% and 9.162% respectively.
Share Price Movements
After hitting a high of £4 on the success of the Verbier sidetrack drill, Jersey Oil’s share price has dropped 50%. This is not surprising with the placing at £2 more than doubling shares in issue. I was a little surprised to see the Share Price drift quite so far beneath the placing price, but trading from chart analysis induces a self-fulfilling prophecy, regardless of underlying fundamentals – The market does its thing.
As things stand today, the price appears to be consolidating around minor resistance of £2.20 and more importantly, the 200 Day Moving Average (DMA). A daily close above the 200 DMA at £2.24, provides potential upside towards the previous high of £4, with key resistance levels at £2.55, £2.85, and £3.37. Another upward trend indicator to look out for should the price break the 200 DMA, is the crossing of the 50 DMA through the 200 DMA; a very bullish signal known as a ‘Golden Cross’.
Back to company analysis, and Jersey Oil suggests First Oil might be achievable by 2022 with a lifecycle cost of £22 per barrel of oil. But with projected Capex requirements coming in at circa £1 billion, it may be more likely that Jersey Oil considers selling the asset. The plan, at least for now, is to increase company asset value by proving-up these prospective resources while simultaneously acquiring producing assets that can provide nearer-term cashflow.
Author: Stuart Langelaan
Disclosure: The author of this piece owns shares in the company written about above