Union Jack Oil rises on major West Newton farm-in and £2.25m placing (UJO)

By James Moore


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Union Jack Oil (LSE:UJO) rose 2.9pc to 0.09p this morning after purchasing a stake in a Yorkshire-based licence containing the prospective West Newton gas discovery.

The firm has acquired a 16.7pc position in the 176,000-acre licence, called PEDL183, from Rathlin Energy, a subsidiary of Canadian business Connaught Oil and Gas. Its commercial partner Humber Oil & Gas has also farmed into the licence on identical terms.

The West Newton discovery contains best estimate contingent resource of 189Bcf of gas and has been assigned an operator’s NPV(10) of $247m. It is also on-trend with the Hewett gasfield complex, which had original gas in place of 419Bcf.

The licence has additional upside potential from a lower exploration target called Cadeby Reef, that contains best estimate prospective resource of 79.1MMboe gross. This prospect has been assigned an operator’s NPV(10) before tax of $850m.

Moving forward, the firms plan to drill a conventional appraisal well at West Newton in Q1 2019 at a cost of c.$4.6m gross with a 60pc chance of success. The well will also target Cadeby Reef as a secondary target with a 26pc estimated geological chance of success. In a success case, the companies expect this well to deliver a major onshore gas development.

Union Jack will pay no cash up front for the farm-in, but instead, willpay 25pc of the costs of drilling the West Newton appraisal well. To support this, it has raised £2.25m before expenses in an oversubscribed fundraising that saw it place shares at 0.085p each.

Based on its share of the drilling costs and the operator’s NPV(10), Union Jack said it is acquiring the interest at less than $0.30/boe. Executive chairman David Bramhill noted that the organisation will add 5.3MMboe contingent resources to its existing reserve and resource portfolio on acquisition. Once a field development plan is in place, West Newton’s contingent resources can be converted to reserves

Bramhill added that West Newton will complement its existing work at the Wressle oil discovery and Biscathorpe oil appraisal well, which is slated to drill in Q4 this year:

‘The proposed farm-in to PEDL183 containing the material West Newton gas discovery represents a significant project technically and is compelling financially for Union Jack, andwe are grateful for the continuing support of our existing shareholders and new investors who have participated in this oversubscribed fundraising. The funds raised will allow us to acquire a 16.667pc interest in PEDL183 on attractive farm-in terms, and progress the drilling of the material West Newton conventional appraisal well, where success is expected to deliver a significant onshore gas development going forward and be transformational for Union Jack.

‘We look forward to working with Rathlin and Humber, drilling the West Newton conventional appraisal well to firm up the project’s significant potential and, upon a successful appraisal well, progress to a field development plan. The proposed farm-in and drilling of West Newton in Q1 2019 puts Union Jack in an even stronger position to deliver growth in reserves, production and asset value while adhering to our principles of strict financial and technical discipline.’

Technical Analysis

The share price has been consolidating between 0.085p and 0.10p since August when it tested diagonal support formed from the stock’s lows. The placing price of 0.085p is current support with the stock now looking to regain ground above its 50 and 200 Day Moving Averages (DMAs) – both have been steadily declining so it shouldn’t be too long before this is acheieved.

The price action has been in a downward channel for the past year, and the top of the channel is the next target around 12.75p. This is just below a key line in the sand on the chart at 0.13p – an area with a considerable amount of consolidation previously. Just above that is the bottom of the previous price channel (blue), currently at 0.14p. Also around this area, it is worth noting there is a gap to fill up to 0.145p.

After a headwind of disappointment for shareholders regarding the multiple rejections of planning consent for the company’s Wressle project, things could be looking up for Union Jack Oil. The acquisition of the West Newton gas play joins Biscathorpe as another potentially exciting prospect for investors.

Author: Daniel Flynn & Stuart Langelaan

Disclosure: Daniel Flynn does not own shares in the company mentioned in this article.  Stuart Langelaan owns shares in the company mentioned in this article.


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Author: James Moore

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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