FYI4 Mar 2019 17:44
From Investors Chronicle today : Jersey Oil & Gas commences drilling
Shareholders in Jersey Oil & Gas (JOG:247p), 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, can expect results in mid-April from an appraisal drilling programme that has just commenced on the flagship Verbier discovery in Block 20/5b. Initial operator estimates suggest gross recoverable resources associated with the Verbier discovery is between 25m and 130m barrels of oil equivalent (boe) with an estimated mean of 69mboe. The purpose of the appraisal well is to accurately determine the potential volume range in the discovery.
Management estimates of the value potential for the estimated recoverable oil volume ranges, together with an opinion that all outcomes are potentially commercially viable, suggest a net present value (NPV) in excess of £30m attributable to Jersey Oil and Gas at the low end of the range, and a NPV in the order of £200m at the top end. Neither scenarios factor in valuation upside potential of the Cortina prospect, located on the licensed acreage, which is estimated to hold mean prospective resources of 124mboe, or for that matter additional prospectivity across the licence area.
It was the potential for a transformational drilling campaign that attracted me to Jersey Oil & Gas when I suggested buying the shares at the 200p level in my 2019 Bargain Share Portfolio. Clearly, other investors can see the attraction too as the share price is now 19 per cent higher on an offer-to-bid basis. Of course nothing is guaranteed in the oil exploration industry, but with the company holding net cash of £22m at the end of June 2018 – more than double its £9m to £11m share of the cost of drilling the Verbier appraisal well – then even if the prospect only has 25mboe of gross recoverable resources, representing the low end of the estimated range, this is still worth £30m to Jersey Oil and Gas shareholders. That sum and surplus net cash of £11m (after expensing the appraisal drilling costs) backs up three quarters of the company’s current market value of £53m.
However, based on gross recoverable resources of 77.5mboe in a mid-case scenario (of which 14mboe are attributable to Jersey Oil and Gas) and $7 per barrel of oil with first production in the second half of 2021, analysts have an unrisked NPV estimate of 417p a share for Verbier alone, a sum 70 higher than the current share price. Also, if the company hits pay dirt on Verbier, then there will be a positive read-across for prospectivity across both Cortina and Meribel, other two P2170 licence prospects. Buy.
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