Upside18 Jan 2019 07:42
SP Angel Union Jack Oil Research Note 8 October 2018
West Newton Accretive at All Levels
In Brief
The Company's farmin to Connaught Oil & Gas’ interest in PEDL 183 not only generates
significant value for UJO but also bolsters its appraisal and exploration portfolio. We
estimate that the Transaction will add $7.12m (0.06p) after taking the associated cost
estimates into account. The current market “worth” is $31.4mm (0.28p), which is
0.43x the valuation of $72.9mm (0.64p).
West Newton Brings a Range of Positives
The Company has agreed to farm into the PEDL 183, taking 16.665% Working Interest
on a 1.50:1.00 Paying Interest/Working Interest basis (the “Transaction”), i.e. the
Company pays 25% of the costs of drilling and completing the West Newton – 02 (“WN-
02”) well. No back costs are to be included, but the Company will assume its share of
the operator’s allocated licence costs on an ongoing basis in proportion to its Working
Interest.
WN-02 Drilling Brings Near Term Activity
The Company’s farmin partners have scheduled WN-02 to spud in 1Q’19, which adds to
the Company’s existing activity slate, which also includes Biscathorpe. While Wressle is
many investors’ focus, we believe that West Newton’s prospectivity provides a counter-
balance, not just to the Company’s valuation, but its work programme too.
Transaction Adds to the Overall Valuation
While we estimate that the obligation costs could amount to $2.86mm, which is
comprised of $1.76mm of well related costs and $0.23mm of JV costs. These costs,
however, are more than offset by the value that is created by the consolidation of the
Contingent and Prospective Resources into the portfolio. Our estimates suggest that this
transaction adds $16.4m (0.14p) to the valuation, which when applying the average NAV
multiple of 0.43x suggests a net market uplift of $7.05m (0.06p).
Increasing Balance to the Portfolio
While the main target for the WN-02 is the appraisal of the Kirkham Abbey Shoal, the
deeper prospectivity on the Cadeby Reef, as well as the other prospects in the project
hopper, such as Ellerby and Spring Hill, add additional targets to the Company’s wider
portfolio.
Valuation $72.9mm (0.64p)
We have valued Union Jack Oil’s assets at $72.9mm (0.64p) using DCF valuation
methodology, which is some 611% above the current share price; the un-risked
valuation is $438.2mm (3.84p). We have also assessed the impact of a number of key
variables such as gas price, SPE PRMS category and whether the development of the
West Newton discovery. Given the market NAV(D) multiple of 0.43x, suggesting a fair
market value today of $31.3mm (0.28p), implying the shares, post the Transaction
should be trading 211% above the current share price.
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