United Oil & Gas expects production growth as Egyptian success continues
- United Oil & Gas boosted by another well success in Egypt
- United Oil & Gas broker confident a fix can be found for water issue
- United Oil & Gas confident in its strategy and forward guidance despite water-cut issue at ASH field
Quick facts: United Oil & Gas PLC
Price: 2.4 GBX
Market Cap: £15.48 m
About the company
United Oil & Gas Plc (UOG) describes itself as a rapidly-growing full-cycle AIM-listed oil and gas company with the energy and capability to build on its track record of delivery.
The company is focused on low-risk production and development projects in Egypt, Italy, and the UK, and high-impact exploration in Jamaica.
In early 2020, the company acquired a 22% non-operating interest in the Abu Sennan asset. Located in the prolific hydrocarbon-producing Western Desert region of onshore Egypt, it comprises 7 development concessions.
How it is doing
United Oil & Gas PLC (AIM:UOG, FRA:1UO) told investors that its 22% owned ASX-1X exploration well in the Abu Sennan licence, onshore Egypt, has encountered at least 10 metres of net oil pay across multiple oil-bearing reservoirs.
The well will now be completed and tested, and subject to a successful test, will subsequently be brought online for production.
"Today's announcement is the fourth positive well result from Abu Sennan in 2021,” said chief executive Brian Larkin. “With the well testing set to begin shortly, we look forward to understanding the full potential of the ASX-1X well.
“This is the second exploration well drilled in 2021 on Abu Sennan and gives us further confidence in the value of the remaining exploration potential of the licence. We are also pleased to be planning the drilling campaign for next year and beyond.”
The deal, announced initially in August, sees United sell a pair of North Sea licences (P2480 and P2519) for up to US$3.2mln, comprising US$2mln of cash upfront and a contingent ‘uplift’ payment of US$1.2mln subject to a project having a field development approved by the UK’s Oil & Gas Authority (OGA).
United Oil & Gas (LON:UOG) chief executive Brian Larkin hailed the exceptional performance of the Abu Sennan licence onshore Egypt to date, though the company and its partners are currently addressing a 'water-cut' issue affecting production.
Output for the first six months averaged 2,730 barrels of oil equivalent a day (boepd) net to the group – marginally ahead of guidance, which was set at 2,500-2,700 boepd.
What the brokers say
Analysts at Optiva Securities say they are confident United Oil & Gas (LON:UOG) and its partners will be able to “mitigate” water-cut issues that have led to production declines at the ASH field onshore Egypt.
Calling the news “disappointing”, the broker’s oil team “tempered” its price target to 6.7p a share from 7.3p. That said, the valuation is still more than double the company’s share current share price.
“We remain confident that remedial action on ASH will serve to mitigate excessive production declines from the field and we highlight that our tempered assessment of United’s Egyptian assets still represents a significant uplift on the current share price,” Optiva said in a short note.
What management says
United Oil & Gas chief executive Brian Larkin joined Proactive's Stephen Gunnion to discuss a change to the company's production guidance due to a water-cut issue at its ASH field in Egypt.
Larkin telling Proactive that its strategy remains intact and that the company's Abu Sennan licence onshore Egypt has performed exceptionally since the asset was acquired.
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