Union Jack Oil PLC (AIM:UJO, OTCQB:UJOGF) is expected to continue growing its output in the United States, thanks to its initial successes with the drill bit.
David Mirzai, analyst at City broker SP Angel, who rates Union Jack as a ‘buy’ with a 66p target, anticipates cash thrown off from these first wells in Oklahoma will be reinvested into other ‘low-risk near-term US drilling opportunities’.
“Since Union Jack’s successful entry into the USA a little over a year ago, the Company has drilled 3-from-3 successful prospects in Oklahoma in collaboration with Reach, its local JV partner,” Mirzai said in a note.
“The Moccasin well is now expected to provide material cash-flow going forward contributing to the expansion of revenues from the Andrews Field.
“The company has also constructed a ~$1m cash-generative portfolio of royalty packages that has already achieved a 31% rate of return on the original investment.
The analyst added: “the active US drilling programme is positive for investor sentiment, where the ability to pay out quickly on success should strengthen the company’s balance sheet and its ability to continue shareholder distributions.
“In addition, growth of the production and cash flow profile from the US asset portfolio should also help to rebalance the opportunity set for investors, which could add tangible value on future drilling success and drive share price appreciation.”
Moccasin discovery
The SP Angel note today followed this morning’s announcement that Union Jack had made a new discovery with its latest Oklahoma well, Moccasin 1-13.
The well, 45%-owned by Union Jack, has hit several hydrocarbon-bearing intervals, with the primary target now perforated and indicating potential for significant oil production.
Union Jack and partner Reach Oil & Gas have begun installing permanent production facilities at the site, meanwhile, testing is ongoing - with two more zones scheduled for perforation and evaluation.
Analysts at Shore Capital, meanwhile, described the initial Moccasin result as “very encouraging”, and highlighted that success here could be worth 5p per share – of the broker’s 15p per share ‘core’ net asset valuation.
Elsewhere, internally, the company also has a bullish view.
"Moccasin has more than validated Management's confidence in its success, being a further commercial discovery in Oklahoma for Union Jack,” executive chair David Bramhill said in a statement.
“Testing at Moccasin is ongoing, however, Union Jack and Reach are sufficiently confident of the results to date and the Joint Venture has commenced the installation of permanent production facilities.”
Bramhill added: “Although further testing is required, early indications suggest that Moccasin could provide material cash-flow going forward, contributing to the expansion of revenues from the Andrews Field and Mineral royalty portfolio in the USA, a country that offers fair, attractive and balanced fiscal terms.”
The Union Jack highlighted that Moccasin provided a ‘proof of concept’ that oil occurs in structures to the west of the prolific Wilzetta fault, and, as such, the well opens up further opportunity.
It is the latest success for the small-cap oil in Oklahoma, after it embarked upon a diversification into the United States in addition to its assets onshore UK.
More results are due from Moccasin before the end of the first quarter.