Union Jack Oil (LSE:UJO) edged up this morning after confirming that it has raised its interest in a South Humber Basin oil prospect in the UK by 10pc, bringing its total interest to 22pc. The firm has signed a farm-in agreement for the 10pc interest in the Biscathorpe oil prospect, which has a gross, mean prospective oil resources of 14m barrels and a 40pc geological chance of success.
According to Union Jack’s executive chairman David Bramhill, the Biscathorpe prospect has a pre-drill value for the company of £24m in a success case, significantly higher than estimated drilling costs of around £1m. Union Jack’s shares were up 5pc, or 0.004p, to 0.092p, at the time of writing. The prospect contains a drill-ready conventional well called Biscathorpe-2, which is scheduled to be drilled around mid-2018, marking Union Jack’s first project with new commercial partner Humber Oil & Gas. Drilling will target oil trapped in a sandstone reservoir and will be fully funded by a £1.25m placing carried out by Union Jack earlier this month. The Biscathorpe Prospect is a well-defined four-way dip closed structure that is mapping from recently reprocessed 3D seismic data. BP drilled a well in the area called Biscathorpe-1 in 1987 that encountered a thick oil-filled sandstone that Union Jack expects to thicken down-dip.
Last year, Union Jack commissioned geophysical consultant Sotwell Exploration to carry out an independent review of a 3D seismic survey on Biscathorpe. Sotwell said the whole area is attractive for hydrocarbon exploration and that significant upside could exist. Union Jack’s well, Biscathorpe-2, will be located in a direction towards a potentially thicker sand development in the licence area. Sotwell said this would be the optimum place to appraise the ongoing potential of the area.
Bramhill said: ‘We are pleased to be able to further increase our interest in the drill-ready conventional Biscathorpe-2 well to 22% that is planned to be drilled around mid-year 2018. Biscathorpe-2 holds considerable upside potential for our Company with gross prospective oil resources of 14 million barrels and a high geological Chance of Success of 40%. The oil logged in BP’s 1987 well, Biscathorpe-1, has significantly de-risked the Biscathorpe Prospect.’
‘We look forward to the drilling of the Biscathorpe-2 well this year. This well, together with the Company’s wider portfolio, and the newly-formed commercial partnership with Humber, puts Union Jack in a strong position to deliver growth in reserves, production and asset value while adhering to our principles of strict financial and technical disciplines.’
From a technical analysis perspective, the bottom may be in for Union Jack’s share price, with a decent bounce off 0.08p, confirming support there. Today’s news shifts the market’s focus away from Union Jack’s 15pc interest in the controversial Wressle oil field, which has been plagued by delays and planning permission rejections since the beginning of last year. In January, Union Jack’s share price fell by 22pc after Wressle’s operator Egdon Resources was rejected in its appeal against two planning refusals by North Lincolnshire County Council’s Planning Committee. The update today also serves as a reminder that Union Jack has a number of irons in the fire.
It’s evident there is big potential at Biscarthorpe and anticipation is likely to be reflected in the share price between now and the summer. But even without the headline drill, there is a reasonable argument to be made for a return towards last year’s 0.13-0.15 range.
Author: Daniel Flynn & Stuart Langelaan
Disclosure: Daniel Flynn does not own shares in the company mentioned. Stuart Langelaan does own shares in the company mentioned