Stockbroker SP Angel has repeated a ‘buy’ recommendation for Union Jack Oil PLC (LON:UJO) following its latest deal to grow it onshore UK oil business.
Today, the group unveiled a deal to increase its interests in the Wressle oil project and the Broughton North exploration prospect.
The onshore UK oil junior has done a deal with Celtique Energie Petroleum Limited for 3.33% stakes in the PEDL180 (Wressle) and PEDL182 (Broughton North) licences, paying £600,000. It increases UJO’s stake in the projects to 15% each, up from 11.67%.
UJO will now get a bigger share of the envisioned oil production coming from the Wressle field (once the development project clears the regulatory / planning process).
Executive chairman David Bramhill says Wressle can generate meaningful cash flows for UJO and it is expected to transform the company’s financial position.
In February, it was announced that the oil company’s behind the Wressle field would appeal against a decision by the Lincolnshire County Council which refused to grant planning permission for the field’s development.
The Wressle partners said they intended to file a new application including more detailed information to address the specific concerns outlined in the negative planning decision.
SP Angel, in a note, described the deal as “opportune” and highlighted that it takes advantage of ‘the dislocation created by the planning refusal’.
“Whilst confirmation of the commissioning of Wressle will be required, the higher NPV attributable to UJO's interest, we are adjusting our valuation, which is now $6.4mm (0.16p – Core) to $39.1mm (0.98p – Full),” the broker said.
Bramhill, in Monday’s statement, said: “When in production, first commercial oil from Wressle-1 is expected to flow at an estimated constrained rate of 500 barrels of oil per day gross converting the company`s status from a junior explorer into a fully-fledged oil producer.”
“At $55 oil, management expects the net cash flow generated from Wressle attributable to Union Jack to be significant.
“The board believes that production at Wressle will generate excess cash after accounting for the company`s on-going working capital obligations.”