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Yorkshire oil boom full of promise for small caps Union Jack and Egdon

A number of projects in the Yorkshire and Humber region have high potential for investors.

Reabold Resources - Yorkshire oil boom full of promise for small caps Union Jack and Egdon

Ey-up, a new oil and gas boom is more likely to feature flat caps instead of Stetsons.

A group of small-cap firms are poised with potentially transformational growth projects, in Yorkshire not the ‘Lone Star State’.

Texas, home to the original ‘oil rush’, harks to a history of independence that some of its inhabitants still aim to embody, somewhat similarly the people of Yorkshire will tell you they live in “gods own county”.

READ: West Newton planning advances for new wells

Local identity and pride count for a lot in both places, and, indeed, that can crossover into investments. One factor in in the enthusiastic frenzy surround Sirius Minerals was local pride, another perhaps was hubris.

Some 80,000 private investors bought into Sirius Minerals before it collapsed into the hands of Anglo American. Lots of the invested cash allegedly was drawn out of the long-term savings and pension funds of Yorkshire folk.

For those with lingering risk appetite new natural resource possibilities are emerging in the county.

There two high potential opportunities in Yorkshire, though for those unfamiliar with the sector, like Sirius’s mine project these also should also come with customary financial health warnings.

One opportunity is the West Newton project, located northeast of Hull. The project is being advanced by Union Jack Oil and Reabold Resources, and, it is described as one of Britain’s largest ever onshore discoveries.

The other, located off the North Yorkshire coast, was led by Egdon Resources which recently brought in Royal Dutch Shell as its new majority partner. AIM quoted Egdon retains 30% whilst Shell takes a 70% stake as moves the project to exploration in the coming months.

Egdon & Shell

Its quite notable in the current climate that Shell is taking on the project whilst the top-tier of the oil industry is engaging in a worldwide clampdown on capex.

Now, obviously, for Shell the sums involved in this project are very much in the shrapnel-down-the-back-of-the-sofa bracket. The supermajor’s ‘earn in’ commitment on the Egdon partnership capped at just £5mln, nonetheless, the significance of having Shell involved won’t be underestimated by those backing Egdon.

Egdon is typically much more accustomed to smaller scale onshore ventures.  Its present flagship project and value driver is the Wressle field in north Lincolnshire (near Scunthorpe the well site, as it happens, falls within the ‘Yorkshire & Humber’ region).

Wressle is 30% owned by Egdon with Union Jack also owning 27.5%, and Europa holding 30% too. The field will almost double Egdon’s production volumes when it comes online later this year at an anticipated 500 barrels per day gross (c150 bopd net to Egdon).

Wressle legitimately moves the needle for Egdon which is valued in the market just shy of £9mln, after the share price climbed around 30% compared to the weeks prior to news of the Shell deal.

There will rightly be reason to celebrate as Wressle flows first oil not least because of the extremely drawn out planning and permitting process, following initial well success in 2014.

Resolution and Endeavour are in an entirely different stratosphere, however. According to a note by WH Ireland, Wressle should be worth around 1p share to Egdon whilst the stockbroker reckons the ‘full success case’ for the Resolution discovery project could be worth 11.5p per share.

Resolution was originally discovered in 1966 and las year was estimated to contain some 231bn cubic feet of contingent gas resources and its ‘satellite’, Endeavor, was estimated to have 18bn.

In the coming months Egdon’s attentions will turn to the planned 3D seismic programme (to be completed by the end of May 2021) which is expected to inform Shell’s decision whether to commit to well drilling. Shell is paying 85% of the seismic programme’s cost.

West Newton

Breakthrough well success last year put West Newton on the map, as the A well confirmed a 45 metre oil column plus a 20 metre gas section.

A subsequent base-case estimates for the West Newton project detailed some 146.4mln barrels of oil initially in place and 211.5bn cubic feet of gas. The upside estimates anticipate up to 283mln barrels of oil and 265.9bn cubic feet of gas.

Presently drilling operations are advancing at the West Newton B well site. The main drill rig will shortly drill the well down to 2,000 metres. Results will lead plans for a subsequent test of the well’s production capabilities.

Efforts are also underway to select further well locations, as the West Newton partners to start planning for the next phases of the Yorkshire oil project.

Earlier this month, project operator Rathlin Energy submitted screening requests to the East Riding of Yorkshire Council for two new potential hydrocarbon well sites. The idea is that the C and D wells will help confirm the scale and scope of the discovery.

Not only is the size of the project significant, but its location is also favourable for development. It is the vicinity of the Humber, host to a substantial portion of the UK’s petrochemical industry and ports with industrial scope.

Moreover, this region has been identified by the UK government as a focal point for the development of a ‘zero carbon’ or carbon-neutral industry cluster. As a potential nearby source of hydrocarbons, it is suggested that West Newton could displace alternative less environmentally feedstock from abroad.

These downstream considerations are for another day. In the meantime, excitement continues to rise – perhaps not just for existing investors in Union Jack and Egdon, but, maybe the broader investment community in Yorkshire (and, of course, everywhere else).

Quick facts: Reabold Resources

Price: 0.54 GBX

AIM:RBD
Market: AIM
Market Cap: £38.32 m
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