SP Angel - Oil & Gas Research
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Union Jack Oil*
STRONG BUY: TP 0.84p
Significant upgrade at West Newton
Union Jack Oil (“Union Jack” or the “Company”) has today released updated volumetrics compiled by the Operator Rathlin Energy (UK) Limited at its flagship, conventional West Newton project, indicating a significant upgrade to the 2017 figures contained within the current Competent Persons Report. The headline numbers estimate an in-place Base Case of 146.4MMbbls of oil and 211.5Bcf of gas; and an in-place Upside Case of 283MMbbls of oil and 265.9Bcf of gas. The estimated resource volumes therefore firmly categorise West Newton as having significant ‘company maker’ potential in our view, inferring that the field is one of the UK’s largest ever onshore discoveries. We have taken the opportunity to update our financial model and upgrade our TP from 0.66p to 0.84p, maintaining our STRONG BUY recommendation.
West Newton could become of the largest UK onshore conventional discoveries
The upgraded volumetrics primarily resulted from subsequent evaluation of the drilling results from the recent West Newton A-2 appraisal well, and revised petrophysical, fluid saturation, sedimentological, and diagenetic analysis. The significant revision from the 2017 CPR (which estimated 183Bcf of gas) is the inclusion of a large liquids component, notably 146.4MMbo (Base Case) and 283MMbo (Upside Case). We have prudently used a 24% recoverability factor in our updated valuation through the analysis of similar analogous fields, however we note that this could be materially higher once the reservoir properties are further confirmed through the upcoming drilling of the B-1 and B-2 appraisal wells in 2020.
What next can we expect at West Newton?
Following today’s significant upgrade of the estimated volumes at West Newton, the Company and its partners will now turn their attention to the ongoing Extended Well Test (EWT) of the A-2 appraisal well. In addition, the Joint Venture is considering a 3D seismic programme over other structures which have been highlighted within the licence area. The preliminary success at the A-2 well suggests that Union Jack has the potential to transition from a junior E&P Company into a self-sustaining mid-tier hydrocarbon producer. As such, the short to medium term will focus on maturing this play further, ahead of further appraisal drilling next year.
All eyes on the upcoming planning approval at Wressle
Elsewhere at Wressle (UJO 27.5% WI) the Public Inquiry concluded on 7 November 2019, lasting three days instead of the planned six days. As previously announced, North Lincolnshire Council presented no evidence. We would expect final a decision to be made after 12 December UK general election, but before the end of 2019. If successful, first commercial oil is expected to flow at a constrained rate of 500bopd gross, and therefore could generate c.US$3m per annum net to Union Jack in the current oil price environment (c.US$60/bbl).
*SP Angel acts as Nominated Advisor and Broker to Union Jack Oil
Research – Oil & Gas
Sam Wahab - 0203 470 0473
Richard Parlons – 020 3470 0472
Abigail Wayne – 020 3470 0534
Rob Rees – 020 3470 0535
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+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.
Sources of commodity prices
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