Optiva Securities has raised its core valuation for United Oil & Gas Plc (LON:UOG) for the second time in a fortnight in a note reviewing the explorer's operations.
The City broker said its risked valuation for United Oil & Gas is now 18.7p per share on a fully diluted basis, having already upped it to 17.1p per share, from 15.7p following last month’s awards of new North Sea assets to the explorer.
READ: United Oil & Gas ready to start North Sea farm-out efforts
In a note to clients, Optiva analyst Barney Gray concluded; “Although we reserve the opportunity to adjust this valuation in the event of the conclusion of a number of farm-in deals, we note that our unrisked valuation for United is over 44p per share at this stage, representing major potential upside to the company.”
United Oil & Gas shares are currently changing hands at 5.1p each, meaning Optiva’s valuation indicates big upside potential.
The City analyst pointed out that since United Oil & Gas’s admission to the main market of the London Stock Exchange through a reverse takeover of Senterra Energy in July 2017, the group has established a compelling independent oil and gas business spanning the UK offshore and onshore sectors, Italy and Jamaica.
Gray said: “Utilising the management’s extensive technical and commercial experience, the company has assembled a formidable portfolio of assets ranging from near-term development projects in addition to high impact appraisal drilling opportunities and high risk/high reward frontier exploration where drilling success will be transformational for the company.”
He noted that United Oil & Gas’s near-term focus is the UKCS P1918 licence in the Central North Sea where the company has a 10% exposure to the upcoming Colter appraisal well on Licence.
WATCH: 'Huge amount of activity' ahead for United Oil & Gas as all projects advance
The analysts noted that the Colter discovery, located in shallow water adjacent to the large Wytch Farm field, is estimated by United Oil & gas to contain mean recoverable resources of at least 19 million barrels of oil (mmbbls) with a high GCoS (Geological Chance of Success) of 58.5%.
Gray added: “With a well Authorised for Expenditure by the Colter equity partners and scheduled for drilling in Q4 2018, we anticipate that a successful result will represent substantial upside to the company.”
He also pointed out that last month United Oil & Gas was awarded a 95% interest in UKCS Licence P2366, which contains the Crown discovery.
The analysts noted that Crown is estimated to contain gross recoverable resources of up to 16 mmbbls and United Oil & Gas is now poised to instigate discussions with potential farm-in partners in order to expedite future drilling activity on the licence.
Gray said: “In the event that the company can secure a carried interest or a partial carry on a future appraisal well, we believe that a reduced equity interest will still represent significant value to United.”
In January 2018, the analyst added, United Oil & Gas secured an option to farm-in to a 24% interest in UKCS Licence P2264, which contains the Acle prospect, estimated to contain mean prospective recoverable gas resources of 122 billion cubic feet (BCF) with an attractive GCoS of 40% upon the drilling of an exploration well.
He pointed out: “At this stage, we understand that United’s option is executable upon the basis that additional partners are brought into the licence by the current operator.”
North Italian operations as well
Aside from the UK North Sea, Gray noted that United Oil & Gas holds a 20% interest in the Podere Gallina licence in Northern Italy which contains the Selva gas field.
He pointed out that Selva was flow tested successfully at the beginning of 2018 and the operator, Po Valley Energy has submitted an application for a production licence.
He added; “With planned facilities capable of producing up to 5,300 million cubic feet per day (mcfpd) at peak output in 2021, the company’s interest in Selva will represent a solid cash flow stream to United from the onset of production.”
The analyst noted that Podere Gallina licence also holds several additional exploration targets that have the potential to augment significantly the value of the wider licence.
Off-shore Jamaica too
Further afield, Gray noted that in late 2017, United Oil & Gas secured a 20% interest in the frontier Walton-Morant offshore licence in Jamaica on highly favourable terms.
Walton-Morant is operated by Tullow Oil plc (LON:TLW) which recently completed a 2,250 km2 3D seismic survey focusing on the Colibri lead, estimated to contain recoverable resources in excess of 200 mmbbls of oil.
The analyst noted: “This survey is the first to be acquired in Jamaica and constitutes an early stage of the programme to de-risk this potentially multi-billion frontier hydrocarbon play.”
Having reviewed all the firm’s operations, Gray concluded that United Oil & Gas constitutes a “well-balanced portfolio with major upside.”