Today's Market View - Solid operational progress from Union Jack Oil

Oil & Gas Daily Flow

Non-Independent Research; Marketing & Sales Commentary – MiFID II exempt information – see disclaimer below

Market Update: Monday 23 September 2019

Union Jack Oil (LON:UJO) – Interim results, solid operational progress

Reabold Resources (LON:RBD) – California Operational Update

Independent Oil & Gas (LON:IOG): Award of UK 31st Offshore Round Licences

Prospex Oil and Gas (LON:PXOG): Half Year Report, material cash flows in 2020

Energy prices:         

Brent Oil US$65.1/bbl vs US$64.9/bbl on Friday

WTI Oil US$58.1/bbl vs US$59.7/bbl on Friday

Natural Gas US$2.7/mmbtu vs US$2.7/mmbtu on Friday

Oil price

• Oil prices nudged higher again on Friday as doubts remain on whether Aramco can bring the Abqaiq processing plant back to pre-attack levels by the end of September
• With 80MMbbls in storage within the Kingdom (pre-attack levels), further scrutiny of global inventories will take place if the deadline in two weeks is missed
• Elsewhere, US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view

Company News

Union Jack Oil* (LON:UJO) – Interim results, solid operational progress

Share price: 0.3p, Market Cap: £31.5m

• Given that UJO is in the exploration and appraisal phase of its sector cycle, not much focus is placed on its financials. Nevertheless, the company remains in a strong financial position following its oversubscribed placing in July, and a current debt free balance sheet comprising over £2.8m of cash.
• Operationally, the first six months of 2019 has been an active and accretive period for UJO. The successful drilling of the West Newton A-2 conventional appraisal well identified a gross oil column of 45m underlying a gross gas column of approximately 20m within the Kirkham Abbey formation, suggesting considerable upside for the company and its partners at this key strategic asset.
• Elsewhere, the drilling of the Biscathorpe-2 conventional well confirmed the likely presence of a 35m live oil column with API Gravity oil of 33º to 34º in the top of the Dinantian interval.
• Data evaluated at Biscathorpe at the base of the analysed section, and wellsite readings, indicate possible additional pay at the base of the Dinantian interval.
• As such, we concur with management that Biscathorpe could represent one of the UK’s largest onshore un-appraised conventional plays.
• On development plans for the Wressle oil discovery, after a long and drawn out process, the North Lincolnshire Council will not be presenting evidence at the upcoming enquiry on 5 November 2019 and will withdraw its case.

Conclusion: UJO has made considerable progress across all three (West Newton, Biscathorpe and Wressle) of its core assets in our view, and the company will now embark on an active appraisal programme into 2020. Much focus remains on the West Newton discovery, which we believe has the potential to re-rate UJO following further appraisal of the A-1 and A-2 discoveries in the coming months. In addition, ongoing technical evaluation at Biscathorpe has the potential to identify a material resource with considerable upside and will likely attract industry attention following detailed analysis. Whilst nothing is ever guaranteed, all signals are currently positive that the ongoing Wressle (UJO 27.5% WI) delay is now coming to an end. If successful, the company will look to bring the asset into production in early 2020, providing material cashflows into the business. Wressle-1 well has flowed oil and gas from three separate reservoirs, the Ashover Grit, the Wingfield Flags and the Penistone Flags, and therefore represents a key strategic asset for UJO as it looks to develop its wider asset base.

*SP Angel acts as Nominated Adviser and Broker to Union Jack Oil

Reabold Resources (LON:RBD) – California Operational Update

Share price: 1.2p, Market Cap: £48.8m

• Reabold has today provided an operational update on its high-margin Californian asset base.
• The company’s programme to re-enter and clean out perforated zones at Burnett 2B well on Monroe Swell has been completed, yielding a constrained rate of 40bopd.
• Work is now underway on Burnett 2B to increase the capacity of production facilities, allowing for increased production with a rate to be determined by the company.
• Reabold’s much anticipated programme to re-enter and clean out perforated zones at Burnett 2A well on Monroe Swell continues to be ongoing, and the company is currently evaluating drilling further wells on Monroe Swell and West Brentwood.

Conclusion: Whilst only an incremental addition to Reabold’s production base, the company will be encouraged by the potential running room available at these high margin assets in our view. We believe, Reabold has a well balanced portfolio, and recent positive news flow from its onshore UK and Romanian acreage serves to de-risk its acreage position from both a geological and geographical standpoint.

Independent Oil & Gas (LON:IOG): Award of UK 31st Offshore Round Licences

Share price: 20p, Market Cap: £68m

• IOG has confirmed that the settlement process for its previously announced €100m 5-year senior secured bond raise completed on Friday.
• Proceeds of the bond will be primarily used to fund IOG’s gas development project in the UK Southern North Sea.
• It has a bullet repayment structure and an interest rate, payable quarterly, of 9.5% per annum over the three-month Euribor rate (with a floor of zero when this rate is negative as it is currently).
• It is callable after 3 years with an initial call premium of 50% of the coupon (i.e. repayable at a cost of €104.75m if 3m Euribor is at zero or lower), declining by 10% every six months thereafter.
• Elsewhere, the company has also confirmed that the Maersk Resilient jack-up rig is now off contract following the successful drilling of the Harvey appraisal well.
• The Harvey appraisal well encountered a 49ft gas column. Data acquired from the well is now undergoing analysis to generate a revised technical assessment of reservoir gas volumes and deliverability, meeting the primary objectives of the well. 

Conclusion: Whilst expected, settlement of this significant bond fulfils the key condition ahead of farm-out completion of these key assets. We also believe that raising €100m in debt finance in the current climate demonstrates the robustness of IOG’s flagship assets in the UK Southern North Sea, for which the company will now be fully funded at farm-out completion. Farm-out completion will trigger Phase 1 FID which will be a major milestone for IOG, signalling the start of the project execution phase.

Prospex Oil and Gas (LON:PXOG): Half Year Report, material cash flows in 2020

Share price: 0.1p, Market Cap: £1.9m 

• The company recorded a £681k net loss (H1 2018 loss: £541k), despite a 10% decrease in administrative expenses to £485k (H1 2018: £539k).
• Prospex raised £800k in the period through a placing of 400m new ordinary shares to fund its share of costs for the 2019 Suceava work programme, including drilling Bainet-2 well.
• The majority of the company’s shareholder equity value of £6.3m is backed by its 17% interest in the Podere Gallina licence in Italy following the commercial gas discovery there in 2018.
• During the period, Prospex’s interest was assigned net 2P reserves of 2.26 Bcf and net contingent and prospective resources of 2.40Bcf and 15.56Bcf, respectively in an updated CPR, which also assigned €4.6m (net) to the 2P reserves at the Selva field.

Conclusion: The company’s recent CPR suggests material asset backing behind the company and running room that remains in terms of additional prospects and leads.   Following preliminary government approval of a production concession application in January 2019, Prospex will now look to bring Selva into production at an initial rate of up to 150,000 scm/day in 2020, thereby generating a material revenue stream for the company.

121 Oil & Gas Investment Conference, London, 28-29th October 2019

• SP Angel is sponsoring the annual 121 Oil & Gas Investment Conference in London again this year
• The event hosts some 25 exploration and production companies along with >160 investment funds and analysts over two days of 1-2-1 meetings. Click here to register to attend

Story by ProactiveInvestors