The AIM-quoted company agreed the terms of a deal earlier this month with Rathlin Energy, a subsidiary of Canadian firm Connaught Oil & Gas, and the two have now officially signed the farm-in agreement.
The transaction does not include any upfront fees, but Union Jack is required to cover 25% of the cost of an appraisal well which is due to be drilled in the first quarter of next year. It reckons its share of the costs will be around £4.6mln.
“We are pleased to be able to confirm the Farm-in to PEDL183 containing the material West Newton gas discovery that represents a significant project technically and is compelling financially for Union Jack has now been signed,” said chief executive David Bramhill.
“The drilling of the material West Newton conventional appraisal well, where success is expected to deliver a significant onshore gas development project, will be transformational for Union Jack.”
“In addition to our ongoing commitment to develop the Wressle oil discovery, and plans to commence drilling of the material conventional Biscathorpe-2 oil appraisal well later this quarter, the 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.”
West Newton discovery in detail
West Newton, located on the western sector of the southern Zechstein basin in east Yorkshire, is a conventional operation which UJO highlighted will not involve fracking either now or in the future.
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.
Should the appraisal be successful and lead to field development, Union Jack’s take would be around 5.3mln barrels of oil.
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 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.