Union Jack Oil plc (LON:UJO), a UK focused, onshore oil and gas production, development and exploration company, has today announced its unaudited results for the Half Year ended 30 June 2018.
· Further acquisition to 27.5% in PEDL180 and PEDL182 containing the Wressle discovery providing additional proven reserves in an attractive appraisal and development project
· Further acquisition to 22% in PEDL253 containing the Biscathorpe-2 Prospect planned to be drilled following completion of construction of the wellsite
· Successful workover programme on production wells at Fiskerton Airfield Oilfield
· Commercial Partnership entered into with Humber Oil & Gas Limited
David Bramhill, Union Jack Oil plc Executive Chairman, commented:
“The addition of material interests in the Biscathorpe and Wressle projects during the period under review both materially enhance Union Jack’s oil reserves and resources and increase significantly the upside risk value potential in the fully funded prospective high impact conventional well at Biscathorpe-2 planned to be spudded following completion of construction of the wellsite”.
“The Company will benefit materially if either of these key projects is successful given the considerable upside value potential in each to Union Jack.”
“I look forward to commenting further on each of these drilling and development projects during the coming months.”
“The future of Union Jack remains bright.”
I am pleased to present this Half Yearly Report for the six months ended 30 June 2018 to the shareholders of Union Jack Oil plc (“Union Jack” or the “Company”).
Key Activities in the Period
The past six months have seen a number of Company building events that include the acquisition of a further 12.5% of PEDL180 and PEDL182 containing the Wressle discovery, an acquisition of a further 10% of PEDL253 containing the Biscathorpe Prospect, planned to be drilled following completion of construction of the wellsite, a successful workover campaign on the production wells at Fiskerton Airfield, and the formation of a Commercial Partnership with Humber Oil & Gas Limited (“Humber”).
Wressle is currently the most valuable asset within Union Jack’s portfolio that will propel the Company into a material revenue generating hydrocarbon production entity, following development approval. In pursuit of this, Union Jack and the other joint venture parties remain committed to utilising all available avenues to obtain the necessary planning approvals for the development of the Wressle discovery to proceed.
The acquisition of a further 12.5% of PEDL180 and PEDL182, from Celtique Energie Petroleum Limited in June 2018 increased Union Jack’s interest to 27.5% and reaffirmed the Company’s commitment to the Wressle development project.
The acquisition was completed on attractive terms and involved no initial cash consideration as the payment is deferred and conditional on establishing first oil production at Wressle. This acquisition had an immediate and positive effect on the Company by instantly increasing its reserves and resources base at Wressle by 83%.
When Wressle is in production, it will result in an initial constrained production rate anticipated to be 500 barrels of oil per day (“bopd”), adding net production to Union Jack in excess of 137 bopd. The economics of the project are robust and net asset value accretive down to US$35 per barrel of oil.
In April and July 2018, the operator submitted two planning applications to the North Lincolnshire Council (“NLC”) being the extension of the planning period for the wellsite for a one-year period and for the extraction and development of hydrocarbons from the Wressle discovery. The first application, which was recommended by the NLC Planning Officer, was denied by the NLC Planning Committee and this decision has now been promoted by the joint venture partners to an appeal process.
The operator’s second application to the NLC is due to be heard following the end of a consulting period concluding in late September 2018. The updated application follows the culmination of a significant amount of detailed work by a committed team of specialist technical consultants and planning advisers. The updated application comprehensively deals with the findings of the prior appeal process contained in the Planning Inspector’s report dated 4 January 2018, principally in respect of groundwater integrity.
Acquisition of Additional Interest in Biscathorpe
During March 2018, Union Jack acquired a further 10% in PEDL253 containing the Biscathorpe Prospect, one of the largest UK onshore conventional plays which is planned to be drilled following completion of construction of the wellsite, pro-rata from Egdon Resources plc and Montrose Industries Limited, increasing its interest to 22%.
PEDL253 is located within the proven hydrocarbon fairway of the South Humber Basin. The Biscathorpe Prospect is a well-defined four-way dip closed structure mapped from modern 3D seismic. The Biscathorpe-1 discovery well was drilled by BP in 1987 and encountered a thin oil filled sandstone, which is expected to thicken downdip.
The Biscathorpe-2 conventional well will be located in a direction towards a potentially thicker sand development within the structural closure of the trap.
The current Mean Prospective Resource at Biscathorpe-2 is estimated at 14 million barrels of oil gross with a geological Chance of Success of 40%.
Internal financial evaluations in respect of Biscathorpe are compelling with a current pre-drill Expected Monetary Value of £12.6 million, significantly in excess of our risk capital of approximately £1 million and an Internal Rate of Return on success of up to 328%.
The Biscathorpe-2 well will involve conventional drilling techniques and for clarity the site operations will not, either now, or in the future, involve the process of hydraulic fracturing (“fracking”) for shale gas or shale oil.
Union Jack is fully funded for its share of drilling costs for Biscathorpe-2.
Successful Workover Campaign at Fiskerton
In November 2017, the Company acquired a 20% economic interest in EXL294 containing the producing Fiskerton Airfield oilfield (“Fiskerton”), located approximately seven miles East of the City of Lincoln.
As a result of underinvestment by its previous operator, Fiskerton represented an opportunity for the joint venture partners to enhance cash flows and profitability by executing low cost well interventions, including the installation of new tubing, pumps and the isolation of water producing zones. This initial well workover programme was completed in April 2018.
Production operations have resumed at Fiskerton and field production, prior to further optimisation and operations during the coming months including the increasing of the pump rate, is approaching 30 bopd of good quality oil, a significant increase on the pre-workover rate of 16 bopd gross.
Additional intervention is being considered in the FA-1 well for early 2019.
The Company’s initial review of historic 3D seismic data and drill logs suggested upside potential in the oil resources at Fiskerton. Union Jack is funding a 3D seismic re-processing exercise on behalf of the joint venture to assist in re-mapping the surrounding area to identify further production opportunities. The results from initial interpretations from the re-processing are expected to be available during Q4 2018.
Union Jack holds a 7.5% interest in PEDL143 for which the licence term has been extended until 30 September 2020 and contains the Holmwood exploration prospect.
The recent news that the Secretary of State for Environment, Food and Rural Affairs did not renew the lease for the proposed Holmwood-1 exploratory well was disappointing, especially considering the efforts made by the operator and joint venture partners to make it happen, however, this decision will have minimal effect on Union Jack’s ongoing business activity.
Union Jack, along with its joint venture partners in this prospective licence in the Weald Basin, intend to work together in undertaking a full evaluation of alternative drill sites and other prospects in an area which is highly prospective following the Horse Hill discovery.
Other Portfolio Interests
Other project interests within the Company’s portfolio include the producing Keddington oilfield which we are particularly optimistic on the potential upside, Louth, North Kelsey, North Somercotes, Dukes Wood, Kirklington, the Widmerpool Gulf where Bowland potential exists, Kirklington and the Humber Basin.
A detailed review of Union Jack’s asset base can be found in the Review of Operations section within the Half Yearly Report which will be posted to shareholders and which can also be viewed on the Company’s website www.unionjackoil.com.
Corporate and Financial
In March 2018, the Company raised £1.25 million, before expenses, from an oversubscribed placing and subscription to fund the additional drilling costs associated with the Biscathorpe-2 well.
Since entering into the Commercial Partnership with Humber, Union Jack and Humber have co-invested in a number of projects which include Wressle and Biscathorpe. A director of Humber is also beneficially interested in 754,482,736 ordinary shares of Union Jack representing 13% of the issued share capital of the Company.
I would like to take this opportunity to thank our supportive shareholders, my fellow directors and our team of advisers, all of whom work closely to ensure a smooth running entity going forward.
I expect a very active six months for Union Jack with the drilling of the economically compelling Biscathorpe-2 conventional well and the upcoming planning processes to allow the Wressle discovery to move to development where we and our joint venture partners believe we have comprehensively addressed all previous technical concerns. The Wressle joint venture partners remain committed to pursuing all avenues to progress the Wressle development.
Success with either of these activities would have a transformational effect on Union Jack.
In addition, the Company continues to review exciting late-stage or near-production projects that will complement our attractive current UK onshore portfolio.
The Board continues to apply strict financial and technical discipline to the Company’s activities and endeavours to ensure that our administrative costs are kept under control.
We believe our onshore focus and low-cost business model, combined with actively managing the risk profile of each asset, ensures that eventually we will achieve our ambitions of becoming a mid-tier cash generating entity.
I look forward to reporting further on progress in due course.
The future of Union Jack remains bright.
18 September 2018