Union Jack Oil (AIM:UJO) Executive Chairman, David Bramhill Q&A

Thank you for all the positive feedback we received yesterday for the blog we published highlighting the investment case for Union Jack Oil “Union Jack Oil shares: Exceptionally strong investment case for 2023 and beyond“.

David was kind enough to conduct a Q&A with Share Talk and we thought it would be worth publishing on their own for the benefit of holders.

UJO has interests in 13 hydrocarbon licences across the East Midlands, Humber Basin, and East Yorkshire, of which ‘six have a material near-term impact on the company.’ There is significant detail on all 13 on the company website, but we think Wressle is the absolute highlight and short-term catalyst to watch.


Questions answered on 14/2/23, information given is not advice, and is only accurate at the time of writing and to the best knowledge of Executive Chairman David Bramhill.

  1. UJO’s interests are entirely UK-based. Will UJO as an onshore-based company be affected by the UK government’s windfall tax regime, which could well become even more punitive as BP and Shell report record annual profits? Do you think the country risks discouraging investment given Harbour Energy’s reaction?

Yes of course, as you know the “windfall, tax” (Energy Levy Tax), in my opinion, is very punitive.  2022 results for the year ended December will see from the end of May only and should not be that material, relatively speaking – so we will have to wait a full year before the total effect on 2023 results will be known. However, Union Jack has an active drilling and development programme planned for 2023, and beyond, therefore our spending which can be used as OPEX (100%) and CAPEX (especially CAPEX at 120%  should go a long way in mitigating our tax liability going forward.

To answer your question – yes, I believe that this tax, without a doubt, will affect negatively investment in the UK oil sector.  We are already hearing the rumblings of the majors and mid-caps.  From a personal view – why the oil sector and not all profit-making companies.?  I guess we all know the answer to that.  Finally, one could argue that it is a good position to be in to be able to pay tax on profits.

  1. On a related note, the government is also pretty fickle when it comes to onshore fracking, which probably isn’t helping UJO to plan investment. What are your personal views on fracking, and is governmental flip-flopping a problem?

Ha! A good question. Union Jack has always been a conventional oil company.  Fracking projects have never been a part of our modus operandi.  When the government came out with the plan to allow fracking several years ago Union Jack actively made the decision not to become involved.  That decision has been well vindicated.  There was bound to be opposition. Enough said. Sometimes best to keep one’s views to themselves.

  1. UJO has demonstrated serious share price volatility over the past five years, including its spike to 50p in mid-September 2022, before correcting to circa 27p today. Do you think more volatility is likely over 2023?

Unfortunately, volatility is the name of the game with the majority of smaller cap shares – not just in natural resources.  The euphoria of the lifting of the fracking ban elevated our share price, only to see it drop when the ban was reinstated.  Really one could not make it up.  Being a company with profit, excellent cash balances and no debt will, in my opinion, help steady the ship going forward.  Unfortunately, we have no sway over oil prices, sentiment and geo-political events.  As we release results over the next few months, I would like to think that we address volatility.

  1. Of the 13 licences, Wressle is clearly the flagship project. Is Penistone Flags the second-most important project to the company, or is there another one that investors should be watching closely?

Yes – strange how things turn out – agreed, Wressle is the flagship of our portfolio, however, we do have a balanced portfolio a few of which could turn out to be game changers in the future.  West Newton in which we hold a 16.665% interest has been a curate’s egg.  The wells we have drilled, without a doubt, contain offshore volumes onshore.  The plan is to drill a horizontal well later in the year with our partners and we anticipate a positive result.

Going back to Wressle – this is a superb project, which in our opinion still holds a tremendous amount of upside.  Several months ago, GaffneyCline, a world-renowned hydrocarbon consultancy completed an overview of Wressle and came up with a speculative view that there could be some 2.4 million barrels of oil recoverable from the Ashove Grit formation rather than the six hundred thousand bbls originally believed.  This figure is speculation, however, the way that Wressle has performed over the period one could think maybe they are correct.  Who knows, however, if further work is planned at Wressle will go some way to proving or disproving the theory.

Three gas turbines have recently been installed at Wressle and will help increase oil production.

As you say the Penistone Flags horizon is another Wressle prize that is yet to be produced and yes, does represent a very important development project going forward.

We all know that natural resource projects are not free of risk.  However, you have to remain cautiously optimistic to be involved in this arena. In my opinion, the Wressle journey has only just started.

  1. Brent Crude — widely seen as the benchmark for oil prices — is trading at circa $86/barrel, which despite falling from 2022 highs is still elevated by historical norms. Do you think these prices will stay in place over the longer term, or will they start to fall with the anticipated global recession?

If only we knew.  I have seen several cycles throughout my lifetime.  To be honest, no one really knows – forecasters can forecast their hearts out and invariably are wrong.  However, I do believe that the world is smaller (communications-wise) and the instruments available such as Algorithms and AI have added a degree of sophistication to decisions.  Therefore, I suppose we have a base on which to plan forward in respect of future spending and budgets.  We always use the forward curve and to date, it appears to provide a degree of reliability and support.

I must add that the majority of our projects are profitable, including sunk costs at circa 17 USD which provides a massive cushion of support before red flags start popping up.

  1. Wressle has now generated $13 million in net revenue and seems to be generating circa $1 million per month at present. UJO holds a 40% economic interest in the project, so loosely assuming $12 million a year in total revenue — and excluding optimization plans — would it be fair to say that investors can expect UJO to see around $4.8 million in revenue from this one project in 2023? How much of this revenue is pure profit?

I think – if I am understanding your question correctly you might be understating our revenue for 2023.  If you take a look at the Research-Tree analysis by Shore and Arden you will see that their forecast is circa £8 million.  You can find this research on our website.  Do give me a call if you cannot gain access. As far as profit is concerned, I am afraid I cannot discuss profit – you understand this I am sure.

As some guidance can I point you to our Interim Report (on the website) where we have the latest figures.  From that, I believe that you will be able to deduce that figure.  Give some leeway for 2023 for the Energy Levy Tax.  I hope this helps.

  1. On 3 February, UJO had over £10 million comprised of ‘cash balances, short-term receivables and liquid investments.’ It was (and presumably still is) debt-free, and cash flow positive covering all G&A, OPEX and contracted or planned CAPEX costs, including any drilling activities for at least the next 12 months. At sub-£30 million, is UJO seriously undervalued purely based on fundamental analysis?

Everything is good.  No debt, revenue coming in on a monthly basis and the trend is upward.  You said undervalued – I could not agree more, however, as you know the market dictates the price.  We have had a very good 2022.  Possibly the market is seeking confirmation of sustainability through 2023. We have paid a maiden dividend and commenced a share buy-back which will enhance EPS.  I have to agree with you though.

  1. What is your favourite part of working as Executive Chairman at Union Jack Oil? Least favourite? Any interesting anecdotes? Is working with partners, often as the junior partner, occasionally frustrating, or are two heads better than one?

To be honest I enjoy every aspect of working as Exec Chairman of the Company.  Every day brings news, and I am still learning.  I have an excellent geological and financial team working with me and we have managed to transform from a grass root explorer to a producing profitable company over the years.

We have great JV partners in Egdon and Rathlin and the fact that we have a technical team in my opinion second to none it enables us to prove our worth as JV partners. We have a very healthy relationship with our partners and as far as we are concerned these relationships have plenty of distance to travel in the future.

Frustrations I think are not caused by partners but by outside influences.  Impossible to put a time on events – by stating a timeline should there be any unavoidable delays we always are held responsible.

Anecdotes – Ha – there are many.  I am afraid in order for me to share these one must buy my book – still, in the editorial I am afraid.

  1. Given that UJO remains fully capitalized for the next year, can you rule out a share placement for at least the next six months? Fear of placements has always been fear number one among FTSE AIM investors.

The easiest of your questions.

As Simon Cowell would say a big YES – to be clear NO placing for the foreseeable future.

  1. If you had to convince somebody who had never heard of UJO before to invest in less than two minutes, what would you say to them? What’s the compelling argument to assign portfolio capital to Union Jack in a market filled with explorers?

I hate “tipping” my own Company, however, I do believe that we tick the box in several places.

  • Profitable
  • Dividend-paying
  • Cash-rich
  • A balanced portfolio of production, exploration and development
  • Financial transparency

I agree that the market is filled with explorers, however, I believe that we are now not in that category, this is due to our balanced portfolio and our recognition of the value of Wressle where our original investment was circa 8%. Our acquisition strategy has made us the predominant holder right now with 40% of this high-value asset.

Other upside remains with West Newton, Biscathorpe and Keddington where success with the drill bit and future development would create further material value.

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