RE: Zeus7 Jan 2025 08:26
VERY Positive!
Jersey Oil & Gas JOG LN - Oil & Gas Producers It’s the wrong price • JOG shares are currently trading near a four-year low, around levels not seen since 2020, when oil prices had collapsed and well before the company executed its Buchan farm outs with NEO and Serica. JOG’s £13.0m cash holding means the EV is now minimal, but we believe the environment for UK North Sea operators is improving, with potential catalysts on tax and environmental terms due in 2025. These could help underpin a successful Buchan FID, which would act as a significant upside event. We believe the shares are the wrong price, creating an attractive opportunity for investors. • The valuation argument. JOG is currently trading on a market cap of £20m. The company held cash of £13.0m at the end of June 2024, and this implies an EV of £6.6m. Even if we allow for two years of forward G&A costs (expected to be £1.5m/year from early 2025 post recent cuts of 50% - JOG is fully carried for ongoing Buchan FEED costs), this still implies an EV of around £10m. • The company holds a fully carried 20% stake in the 70mmbbl Buchan oil development in the UK North Sea. We value this at £137m in our total risked NAV for JOG (£162m unrisked), based on a US$65/bbl long term Brent price and the Energy Profits Levy ending as scheduled in 2030 (with the UK tax rate then reverting back to 40%). Even if we assume the EPL never ends (despite what this might mean for achieving project FID) and cut our Brent price to US$50/bbl, our valuation moves to £47m risked (£55m unrisked). This does not even take account of the US$20.0m cash payments due to JOG under its farm outs at Buchan FID. • The worst case of these numbers implies that investors can currently pay an EV of £10m for a project that could be worth £47m net to JOG, or an uplift of nearly 5x. In our view, this is a very attractive potential uplift for the risk involved. • The North Sea improving argument. Whatever the implied value of JOG’s stake in Buchan, there is an argument to say this is somewhat binary, as if the project does not achieve FID, its value to JOG could end up being limited. We know the last couple of years have been challenging for the UK North Sea. The terms of the EPL have deteriorated on several occasions; the new Labour government has pledged to stop issuing new exploration licences; the Finch ruling on scope 3 emissions has created uncertainty around project approvals (including for the already-underway Rosebank and Jackdaw developments); and several operators have begun to exit (including APA Apache) or consolidate (including the Shell/Equinor JV and combination of Ithaca with Eni’s UK assets). Despite these issues, it is our view that the UK North Sea has now turned a corner, and we expect a better experience for operators over 2025. • We believe the corner was turned for the North Sea at the UK budget in October. The Labour government had already announced that it would i
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