RE: House Broker22 Jul 2019 21:45
Investors chronicle article well worth a read.
Jersey Oil & Gas (JOG:137p), a UK North Sea-focused upstream oil and gas company that owns an 18 per cent interest in the P2170 licence (Blocks 20/5b & 21/1d), Outer Moray Firth, which contains the Verbier oil discovery, has been awarded three blocks in UK Oil & Gas Authority’s 31st Supplementary Offshore Licensing Round. I anticipated this would happen when I reiterated my buy stance, at 63p, a couple of months ago(‘Share price catalysts on Jersey’s horizon’, 20 May 2019). Jersey's share price has surged by 86 per cent on today’s licensing awards.
That’s because it is a transformational development for the company and one that has prompted analyst Daniel Slater at house broker Arden Partners to almost double his target price from 230p to 450p based on a risked net asset value (NAV) estimate of 537p a share, using a US$65 a barrel long-term oil price. That’s because the acreage awarded to Jersey in the licensing round includes the Buchan oil field that was discovered by BP in the mid-1970s and came onstream in 1981. Production continued until May 2017, when the Buchan Alpha platform was no longer compliant with the current Safety Case, by which point a total of 148m barrels had been produced.
Buchan oil is a light 33.5° API oil with a low gas-oil ratio (GOR) GOR (285 scf/bbl), a term that quantifies the amount of gas dissolved in the oil. Jersey estimates that over 80m barrels of recoverable oil volumes remain to be produced from the field. The field was not developed by previous owner, Repsol Sinopec, but is development ready.
In addition, Jersey has been awarded 100 per cent working interests and ownership of Buchan Andrew, an undeveloped discovery above the main Devonian Buchan reservoir, and J2 Sgiath, an undeveloped discovery. These discoveries are estimated to have unrisked gross recoverable mean resources of 20m and 3m barrels, respectively, according to Jersey management and independent work completed by Rockflow Resources on behalf of the company.
And here’s the really smart part of today’s announcement. Jersey has entered into a three month option agreement under which Equinor, the is operator of Verbier, has been granted an option over a 50 per cent equity interest in respect of the two blocks containing the Buchan oil field and J2 oil discovery. Should the option be exercised, Jersey will act as licence operator and Equinor will reimburse the company for its 50 per cent share of costs in relation to the licence applications.
The plan is to submit a field development plan (FDP) to encompass initial redevelopment of Buchan (including new wells), followed by a tie-in with the nearby J2 discovery and Verbier. Subject to funding, first oil is targeted for 2024 and Jersey’s current net cash position of £15m (Arden estimate) should fund it through the FDP process depending on any further drilling that may occur on P2170
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