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In the Money - (UJO)
27/11/2019 (119264)

In The Money

Congratulations to chairman David Bramhill and the board of Union Jack Oil (UJO). Badly bashed by the leak of financing moves, they have raised £5m by issuing shares at 15p, and ought now to be all set to enjoy the progress on proving up the monster West Newton oil and gas discovery – and maybe much else.

The price is deeply disappointing, but ultimately should not matter too much. For anyone ready to take a gamble – and any company in the hydrocarbons discovery game is speculative – this nonsense has opened the opportunity to buy in at an unexpectedly modest level. The shares closed today at 0.16p to 0.17p, a good 10p below the levels it reached before news of a potentially massive oil discovery alongside the gas prospect. Suddenly you can get much more for less.

Unless West Newton goes dramatically wrong, this lacks all logic (tempted to say it is daft, but then the market is what the market is – the monitor of the collective wisdom of all of the players). The market capitalisation of Union Jack is now £20m (before the share issue, or just under £26m after it). Union Jack’s 16.665% stake in West Newton is worth maybe five to ten times that, without counting the company’s other prospects and maybe £7.5m cash.

Union Jack now has the funds to cover the continuing development of West Newton. There is an extended well test which could be concluded before the end of December, but could well run into Christmas delays and shift the results into early January. At around the end of the first quarter 2020, there should be the first of two back-to-back wells to flesh out the contours and content of West Newton. There will be a competent persons report yielding more important information, but we are probably waiting until next year now before major news on West Newton.

Note, though, that Bramhill is talking about more drilling adding ‘significantly’ to earlier success, and about funds available for a seismic acquisition programme over other structures in the licence area which are believed to hold significant upside potential. Volumetric data indicates a ‘material’ onshore discovery of possible national importance.

Union Jack is hoping to gain final permission to pump oil at the Wressle discovery, which could eventually generate up to £3m cash a year for the company’s share. Some of the new funds will help finance a share of drilling a side-track well at nearby Biscathorpe, where there could be major potential. Other project s at North Kelsey and Keddington could also add value.

It all looks extremely encouraging for Union Jack, and while recent events have illustrated all too clearly the uncertainties which beset small companies in current market conditions, and especially those in the exploration game, the potential value must eventually come to be recognised here as West Newton becomes better understood and more fully exploited.

That requires a little patience among investors, but not too much. Once the two additional wells at West Newton are in, everyone will have a clearer idea of the eventual value. All of the signs suggest it could be much greater than so far determined. All being well, that is the point at which a major player could move in to buy the project out.

That should mean a very substantial profit for Union Jack, and for Reabold Resources (RBD), the other small oil player featured here. In each case, a West Newton take-out would likely mean a distribution to shareholders of a chunk of the profits.

There is one thread still dangling. It is not clear what is happening with Humber Oil, a private company which has been sitting alongside Union Jack with Egdon as the operator on several projects and holds 16.665% of West Newton. Humber has defaulted on payments at Biscathorpe, where it hold 20% (Union Jack has 22%), and the remaining partners have begun proceedings to recover the sums owed. It is not clear how this will be resolved, but it could mean the interests of the non-defaulting partners could be re-aligned.

The last few weeks have seen Union Jack and Reabold both raising funds to carry West Newton forward. This has created scope for all manner of market manipulators to come out to play. Union Jack is chasing one of them through the courts. Hopefully trade will settle to a more normal pattern in the weeks ahead as the outstanding potential comes to the fore for both companies.

I have a holding in Reabold Resources.

  More on (UJO)
Previous Stories
Mike on (UJO)
8/9/2020 Sit this little panic out.
6/7/2020 Oil plays going cheap.
8/6/2020 Union Jack looking good.
30/4/2020 Action soon at West Newton.
30/3/2020 Good news from Union Jack Oil.
18/3/2020 Union Jack making progress.
21/1/2020 Union Jack positive.
17/1/2020 Good news at Union Jack.
27/11/2019 Union Jack gets the cash.
18/11/2019 The nonsense around Union Jack.
23/9/2019 Will the fun start again soon at Union Jack?
22/8/2019 Excitement rising at West Newton.
15/8/2019 West Newton speculation.
29/7/2019 More good news from Union Jack.
24/7/2019 Oil muddle.
16/7/2019 Union Jack rumours.
15/7/2019 Union Jack excitement.


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