AIM-quoted UJO has agreed a transaction with Rathlin Energy, a subsidiary of Canadian firm Connaught Oil & Gas, via a farm-out that commits UJO to cover 25% of the cost of an appraisal well in the first quarter of 2019.
The transaction does not include any upfront fees, though UJO said it expects its share of the appraisal well will cost around £4.6mln.
It is a conventional operation, and, the company highlighted that it will not involve fracking either now or in the future.
A significant and financially compelling project
"The proposed Farm-in to PEDL183 containing the material West Newton gas discovery represents a significant project technically and is compelling financially for Union Jack and we are grateful for the continuing support of our existing shareholders and new investors who have participated in this oversubscribed fundraising,” said David Bramhill.
He added: "Given our ongoing commitment to develop the Wressle oil discovery, and plans to commence drilling of the material Biscathorpe oil appraisal well during Q4 2018, the proposed farm-in and drilling of West Newton in Q1 2019 puts Union Jack in an even stronger position to deliver growth in reserves, production and asset value while adhering to our principles of strict financial and technical discipline."
Bramhill highlighted that UJO would book some 5.3mln barrels oil equivalent contingent resources at West Newton, if a successful appraisal leads to field development.
UJO’s commercial partner Humber Oil & Gas will, at the same time, similarly acquire a 16.667% interest in the project.
Humber director Frazer Lang, in a statement, said: "PEDL183 is one of the largest onshore licences within the UK and we are delighted to be investing in parallel in this project alongside our Commercial Partner, Union Jack.
"The conventional West Newton appraisal well is planned to be drilled in Q1 2019 and, if successful, the effect will be transformational for both Union Jack and Humber.”
West Newton discovery in detail
West Newton discovery is located in east Yorkshire, on the western sector of the southern Zechstein basin, and, it is on trend with the prolific Hewett gas field complex (which had 419bn cubic feet of original in place gas).
A 2014 discovery well opened up an estimated 189bn cubic feet of contingent gas resources (31.5mln barrels oil equivalent) at West Newton. It will now be followed up by an appraisal well, in early 2019, which is estimated to have a 60% geological and commercial probability of success.
West Newton’s operator has estimated a net present value of US$247mln for the project.
Cadeby exploration potentially
Additionally, the project operator has also identified a significant oil exploration target, in a feature called the ‘Cadeby Reef formation’ which is positioned beneath the gas discovery.
It is, therefore, proposed that the appraisal well will also drill deeper to test the prospect as a secondary target. The exploration prospect is estimated as some 79.1mln barrels oil equivalent and it has an estimated 26% chance of success.
More broadly, there are a number of other ‘additional attractive prospects and leads’ identified within the licence area which could in the future add to the significant prospective resources.
To raise the funds, UJO is issuing 2.64bn new shares each priced at 0.085p. The placing is being arranged by SP Angel as sole broker.
Humber Oil & Gas, the company’s commercial partner, is to participate in the funding by acquiring 513mln shares, taking its shareholding to 1.26bn shares or 15% of the company.
Directors Joseph O'Farrell and Raymond Godson also intend to purchase shares via the placing – subscribing for £30,000 and £10,000 of shares respectively.