SP Angel Oil & Gas Research notes – Union Jack Oil PLC Poised for a Re-rating
We believe Union Jack Oil’s (“Union Jack” or the “Company”) current share price represents a compelling entry point into a growing producer, operating in a prolific hydrocarbon province. With three material ‘company maker’ acreage positions onshore UK, all with near term share price catalysts, we see the Company’s current valuation as poised for a re-rating. We, therefore, upgrade our recommendation from BUY to STRONG BUY, setting a new 0.66p Target Price.
West Newton could yield 3x Union Jack’s current market capitalisation
Whilst Union Jack holds an enviable acreage position across several UK onshore licences, we believe that West Newton is the ‘jewel in the crown’ in terms of near-term transformational value. Our Target Price is conservatively based on the latest third party assessed gas resource (£55.14m net to Union Jack), however, given subsequent testing and ongoing, analysis and interpretation of the recently drilled A-2 coring sample, the reservoir is now deemed to be predominantly oil-bearing. Assuming a more realistic 60/40 – oil/gas ratio, we infer a valuation closer to £75m net to Union Jack, some 3x the Company’s current market capitalisation on this asset alone.
Wressle coming onstream would generate c.US$3m/yr to Union Jack
Following a successful drilling campaign, Wressle consists of proven reserves and low-risk upside potential, from which first commercial oil is expected to flow at a constrained rate of 500bopd gross. In the event of a successful planning approval (slated for 5 November 2019), commercial production at Wressle could generate c.US$3m per annum in the current oil price environment (c.US$60/bbl).
The results of the recently drilled Biscathorpe-2 well have been misunderstood by the market in our view. Subsequent analysis indicates that the Basal Westphalian sandstone has the potential to be more thickly developed to the north and north-east of the Biscathorpe-2 location away from what appears to be more extensive than expected Palaeo-high. We are particularly encouraged by the elevated gas readings and shows from logging supported by calculated oil saturations in the Dinantian Carbonate over an interval in excess of 150m, which included a suite of gas indications C1 to C5 and nC5, which is indicative of an effective petroleum system.
Resume coverage with a STRONG BUY recommendation
In the current climate, we continue to advocate those companies that pursue low-cost development/production strategies and Union Jack has certainly delivered on this criterion, with transformational near-term running room in the stock to come in our view. We, therefore, move our recommendation from BUY to STRONG BUY and increase our price target from 0.55p to 0.66p
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