Union Jack Oil PLC (LON:UJO) is an AIM-listed oil and gas exploration and development company with a number of onshore licence interests in the UK, all centred around the East Midlands and East Yorkshire.
• The Company recently announced a highly successful appraisal well on the West Newton gas discovery in which it holds a 16.665% stake. An extended well test (EWT) is now planned for the well, which will take place in Q3-2019. A successful test will likely prove the commerciality of the discovery and also provide more information as to the ultimate size and value of the field, although it is already clear that this could be a genuine game-changer for UJO. A significant liquids column was intersected in the recent well, which could have a material positive impact on valuation.
• Prior to the drilling of the recent West Newton A-2 appraisal well in June, the licence operator (Rathlin Energy) had estimated best estimate contingent resources of 189 bcf of gas and an NPV10 in excess of $300 million. Following the successful drilling of the well, and the impending EWT on West Newton A-2, the likelihood is that this estimate will increase substantially, especially if it is liquids-rich. Moreover, there is significant potential value in the rest of UJO’s portfolio of assets.
• On the back of this successful appraisal well result we feel comfortable reducing our risking on West Newton and also including a contribution from the liquids column to our valuation. We are resuming research coverage with a DCF-based target price of 0.55p/share, or nearly 3x the current share price. It should be stressed that we believe there remains considerable upside from here, albeit subject to the outcome of the EWT.
• UJO only farmed into licence PEDL183 last October, agreeing with Rathlin Energy to take a 16.665% interest in the licence in return for paying 25% of the cost of the West Newton A-2 appraisal well. In retrospect this now looks an excellent value-accretive deal and management should be applauded for this.
• The well itself encountered a substantial hydrocarbon accumulation within the Kirkham Abbey primary target, with a net 65 metre hydrocarbon interval. Crucially and unexpectedly, and below the gas target that was confirmed on logs, coring and logging of the well also confirmed a significant liquids column (presumably light oil or condensate).
*SP Angel acts as Nomad and Broker to Union Jack Oil PLC