Union Jack Oil PLC (LON:UJO) shares advanced 6.45% on Monday after acquiring an interest in the Broughton North prospect through its latest partnership deal with AIM peer Egdon Resources Plc (LON:EDR).
It is to acquire an 8.33% economic interest in PEDL182, in Lincolnshire, which hosts the Broughton North prospect. To acquire the stake, Union Jack agrees to cover 12.495% of the cost of a well and will pay some £64,000 of Egdon’s back costs.
The project is located in the vicinity of the Wressle oil discovery – indeed Wressle is believed to extend into the PEDL182 area – and Union Jack highlighted that the recent success there has significantly reduced the geological risk for Broughton North and PEDL182.
"This acquisition affiliates two prospective licence areas, already demonstrated by the Wressle-1 oil and gas discovery,” said David Bramhill, Union Jack executive chairman.
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“In addition to Wressle, which is anticipated to produce first oil during Q4 2016, Union Jack has also acquired a portfolio of high calibre licence interests containing several drill-ready prospects including Biscathorpe, North Kelsey, Keddington, Holmwood, Louth, North Somercotes and Broughton North.”
Mark Abbott, Egdon managing director, meanwhile, said: “This farm-out helps to optimise the balance of risk and reward for the company in exploration of the remainder of PEDL182 where geological risks have been greatly reduced following the Wressle discovery in 2014.
“We believe that aligning the interests of the parties over the entirety of both PEDL180 and PEDL182 will facilitate the development of the Wressle Field and further exploration."
Union Jack, with its 8.33% stake in PEDL182, is now partnered alongside Egdon with 25%, Celtique Energie with 33.3% and Europa Oil & Gas Plc (LON:EOG) with 33.34%.
The company highlighted that it has £2.3mln of cash and is debt free. The company expects that it will cover its participation in the Broughton North well from its share of production from Wressle.
Broker SP Angel described the deal as a ‘positive step’ and a ‘logical move’.
“We believe that this continues to support management's mantra of gaining exposure to interesting assets without excessive risk exposure to the Company's owners,” the broker said in a note.
SP repeated a ‘buy’ recommendation and the broker’s 0.67p price suggests some 311% upside to the current price of 0.17p.
--UPDATED, includes share price details and broker comments--