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Today’s Oil & Gas Update – Union Jack Oil and more…

Union Jack Oil* (AIM:UJO): New corporate website

Share Price: 36p, Market Cap: £38m

STRONG BUY – TP: 176p

Union Jack has announced the launch of a new corporate website at www.unionjackoil.com

Oil & Gas Daily Flow

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

 

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Market Update: Tuesday 27 April 2021

Reabold Resources (AIM:RBD): RBD share offer to acquire additional 13.12% of Corallian

Union Jack Oil* (AIM:UJO): New corporate website

Egdon Resources (AIM:EDR): Interim results, Wressle to have a material positive impact this year

 

Energy Prices         

Brent Oil US$66.3/bbl vs US$65.2/bbl yesterday

WTI Oil US$62.6/bbl vs US$61.3/bbl yesterday

Natural Gas US$2.87/mmbtu vs US$2.72/mmbtu yesterday

 

Oil Price News 

  • Given the ongoing imbalance between global oil supply and demand in the wake of the major waves of Covid-19 that hit the world last year, news that Libya is now targeting 1.45MMbopd of oil output by the end of this year, 1.6MMbopd within two years and 2.1MMbopd within three to four years will compound a negative price sentiment on oil pricing for many traders
  • Although the most bullish of forecasts, principally from oil companies and state producers talking their own book, look for demand to catch up with supply by the very end of this year, more independent authorities take a less optimistic view
  • Elsewhere, the world’s largest oil company and biggest oil exporter, Saudi Aramco, has resumed tendering and development work on major offshore oil expansion projects that would give Saudi Arabia another 1.15MMbopd of production capacity by 2024
  • After the oil price and demand collapse last year, to which Saudi Arabia itself contributed by breaking up the OPEC+ pact for a month, Aramco idled offshore rigs and postponed the start of the expansion of several projects
  • Offshore drilling contractors Noble Corporation and Shelf Drilling were notified in June 2020 by Saudi Aramco that their rigs offshore the Kingdom would be suspended for up to one year
  • Now the Company is moving forward with the postponed start of the development work
  • Aramco has issued tenders for development work at the offshore Zuluf oilfield with a capacity of 825,000bopd, which is planned to be increased by 600,000bopd
  • The expansion project, initially expected to start up in 2023, is now postponed with a few months and is expected to start operations either late into 2023 or in early 2024
  • Work on the expansion of two other offshore oilfields, Marjan and Berri, had already started at the end of March
  • The 400,000bopd Marjan field is set to boost its capacity by 300,000bopd, and the Berri field, currently with a capacity of 300,000bopd, will see its production capacity rise by 250,000bopd by 2023

 

Gas Price News 

  • Natural gas prices surged yesterday, and the rest of the company complex as the dollar continued to trend lower
  • Strong demand from manufacturing helped buoy natural gas prices
  • US Durable Goods orders are stoked by manufacturing demand that has been building since last fall
  • According to the Commerce Department, new orders for durable goods increased by 0.5% to US$256.3bn in March compared with February
  • According to the National Oceanic Atmospheric Administration, the rally in natural gas comes despite warmer than expected weather that will cover most of the United States for the next 2-weeks

 

Company News

Reabold Resources (AIM:RBD): RBD share offer to acquire additional 13.12% of Corallian

Share Price: 0.7p, Market Cap: £58m

  • RBD has announced that it has conditionally offered to acquire additional Corallian Energy shares from existing Corallian shareholders, in exchange for RBD shares, at a ratio of 474 RBD shares for 1 Corallian share, potentially increasing the Company’s shareholding in Corallian to a maximum of 49.99%. 
  • Assuming a full take up of the Offer, RBD would acquire up to an additional 13.12% of Corallian’s issued share capital from existing shareholders, in addition to its existing 36.87% equity position.
  • By potentially increasing its position in Corallian, Reabold would be increasing its economic interest in the 100% Corallian-owned Victory Gas Discovery, West of Shetland.
  • The Victory Gas Discovery was evaluated to have 157Bcf of 2C contingent resource with an associated NPV of £146m.
  • Victory is considered by Corallian to be a simple, low-risk gas development which has been fully appraised and requires no additional pre-development drilling.
  • Victory is located near existing infrastructure, in particular, the Total operated Greater Laggan Area, with the development of Victory expected to be via a single-well sub-sea tieback.
  • The licence P2596 (Block 207/1a), which contains Victory, was originally offered to Texaco in 1972 who drilled a discovery well in 1977 that flowed at circa 9MMscf/d from 200ft of net gas pay in the Lower Cretaceous sandstones, proving reservoir commerciality.
  • Corallian shareholders may elect to tender up to their entire holding and in excess of their relevant pro rata percentage.
  • However, should aggregate acceptances received be higher than the 13.12% maximum, Corallian shareholders tendering in excess of their pro rata entitlements would be scaled back so as to ensure that all Corallian shareholders have the opportunity to accept their pro rata entitlement to the offer and so that the Company’s shareholding in Corallian does not exceed 49.99% of Corallian’s issued share capital.
  • Accordingly, Reabold would issue a maximum of 469m RBD shares assuming a full take up by Corallian shareholders as part of this offer.
  • the conditions are not satisfied by 28 May 2021 (or such later date and time as agreed between RBD and Corallian), the offer shall automatically lapse. 

Our take: A somewhat shrewd move by RBD although questionable timing given recent weakness in the share price and therefore greater shareholder dilution. Nevertheless, if successful, development at Victory is likely to be relatively simple as it can utilise nearby existing infrastructure, in particular that of the Greater Laggan Area operated by Total, and as such offers a fast-tracked timeline to production.

 

Union Jack Oil* (AIM:UJO): New corporate website

Share Price: 36p, Market Cap: £38m

STRONG BUY – TP: 176p

  • Union Jack has announced the launch of a new corporate website at www.unionjackoil.com
  • The new corporate website contains several new features, many of which have excellent animations, educational videos, a world oil and gas consumption meter and several other state-of-the-art aspects, including a monthly draw competition where a lucky visitor could win a superb print depicting an industry scene.
  • The Company hopes that the new website will “turn web searchers into visitors and those visitors into new shareholders.”

Our take: A very nice upgrade to the Company’s website sees a refreshed and intuitive design with a number of additional features. The ‘competition’ tab is also not to be missed for those that enjoy industry nostalgia. Today’s update follows a number of operational success for Union Jack YTD and investors now have clear line of sight on the much-anticipated Extended Well Test’s (EWT’s) on both the WNB1Z and WNA-2 appraisal wells. With regards to an updated CPR due in the short term, we would also not be surprised to see a material in uplift volumetrics given the highly successful drilling reports, notwithstanding the thicker structure and contiguous nature of the Kirkham Abbey formation between the A and B sites, but also the elevated mudgas concentrations observed. In addition, the Joint Venture is considering a 3D seismic programme over other structures which have been highlighted within the licence area especially with the Ellerby and Spring Hill Prospects being on-trend with West Newton. As such, the short to medium term will focus on maturing this play further to commercialisation, in addition to proving up analogue fields across the project area. We highlight that Union Jack remains in a well-funded, debt free position, with Wressle (UJO 40% working interest) now onstream. Indeed, the acquisitions of material stakes in its core assets (Wressle, Biscathorpe), underpinned by continued success with the drill-bit suggests that Union Jack has the potential to transition from a junior E&P Company into a self-sustaining mid-tier hydrocarbon producer. On this basis, we reiterate our STRONG BUY rating and 176p/share TP.

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

 

Egdon Resources (AIM:EDR): Interim results, Wressle to have a material positive impact this year

Share Price: 5.2p, Market Cap: £32m

  • Egdon’s interim results to 31 January 2020 saw oil and gas revenues fall to £0.424m (H1 2020: £0.675m) as a result of declining production and weaker prices.
  • This led to a loss of £0.763m (H1 2020: £1.044m) before impairments.
  • Overall loss for the period was £1.039m including £0.276m of impairments (H1 2020: loss of £3.235m, £2.191m of impairments).
  • Cash and cash equivalents at the end of the period was £2.422m (H1 2020: £0.781m), including the £1m loan facility secured with Union Jack Oil.
  • Net current liabilities as at 31 January 2021 were £0.126m, which includes liability for £0.962m convertible loan (H1 2020: £Nil) and £0.417m deferred consideration for Wressle (H1 2020: net current assets of £0.370m; including liability for Wressle deferred consideration of £0.417m).
  • A £1.051m convertible loan note was issued following approval at a General Meeting in January 2021.
  • Production during the period was 92boepd (H1 2020: 178boepd) in-line with guidance of 90-100boepd.
  • The period saw Egdon successfully complete the farm-outs for the Resolution and Endeavour gas discoveries (P1929 and P2304) to Shell.
  • Planning consent has been extended to 31 December 2021 for the drilling of North Kelsey-1 (PEDL241).
  • Importantly, the period saw the commencement of free-flow test production at Wressle following safe and successful operations to recomplete and reperforate the Ashover Grit reservoir interval.
  • Post period end, Egdon submitted a planning application for a side-track drilling operation, associated testing and long-term oil production at the Biscathorpe-2 well site 

Our take: A typically challenging period for Egdon given unprecedented events in the sector. The most significant event during the period was the completion of site and recompletion works and commencement of oil flows at Wressle in our view. The Company awaits consent to proceed with the proppant squeeze in order to bring production up to the expected level of 500bopd gross which will have a material positive impact on production and cash flow this year.

 

Research – Oil & Gas

Sam Wahab – 0203 470 0473 / 0784 385 5037

sam.wahab@spangel.co.uk

 

Sales

Richard Parlons – 020 3470 0472

Abigail Wayne – 020 3470 0534

Rob Rees – 020 3470 0535 

Grant Barker – 020 3470 0471  

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

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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

Oil Brent, WTI- ICE

Natural Gas – NYMEX

 

 

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Recommendations are based on a 12-month time horizon as follows:

 

Buy – Expected return >15%

Hold – Expected return range -15% to +15%

Sell – Expected return < 15%

Read More: Today’s Oil & Gas Update – Union Jack Oil and more…

2021-04-27 05:57:00

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