Union Jack Oil (AIM: UJO ) said it has purchased a 2.5% cash generating royalty interest in oil and gas production revenues generated from three fields located in the Central North Sea.

The UK focused onshore hydrocarbon exploration company said the 2.5% royalty interest covers 20% of oil and gas revenues produced from the Claymore, Piper and Scapa oilfields. 

UJO said it has used its existing cash balance to acquire the oilfields, known collectively as the Claymore and Piper Complex, for £93,730 from Cambridge Petroleum Royalties (CPRL).

The Claymore and Piper Complex has produced in excess of 1.8bn barrels of oil and 262 billion cubic feet of gas to date, with c.6m barrels of oil and 2bn cubic feet of gas in 2020.

The Group described the royalty as ‘an attractive, cash generating and high yielding investment’ consistent with its strategy and objectives to invest in the UK oil and gas sector.

UJO said the investment offers ‘superior financial returns’ from North Sea oil and gas production to generate a compelling estimated Internal Rate of Return of around 129%.

It said the investment holds an average annual compound yield estimated at 16.5% over the life of the royalty, superior to high street banks, other fixed interest, or treasury investment alternatives. Meanwhile, it stated that the payback is estimated to be less than 12 months. 

This is the first royalty investment in the Claymore and Piper Complex for UJO who has more transactions planned for 2021 with ‘a second, material transaction’ at an advanced stage.

"This compelling investment in a cash generating royalty over the Claymore and Piper Complex's oil and gas revenues, plays strongly to the Company's technical and analytical strengths in oil and gas and represents a low-risk entry strategy to the North Sea while generating superior investment returns,” said David Bramhill, Executive Chairman of UJO.

He said it provides UJO with “the benefits of an attractive cash flow stream and high yields from North Sea oil and gas production without the accompanying capital and operating costs associated with direct participation in the underlying oil field developments and infrastructure.”

He added, "The objective of Union Jack remains to become a mid-tier producer and we see that is now within our grasp with development and free-flowing oil demonstrated at Wressle, the execution of the upcoming well tests at West Newton and planned drilling at Biscathorpe.  All these projects are at an advanced stage and evidence significant progress towards our aim."

Shares in Union Jack Oil have increased by nearly 10% since the beginning of 2021. The stock was trading 15.56% higher at 39p this morning following the morning announcement.

The acquired interest, which holds a plethora of positive financial benefits for the company, represents Union Jack's first investment in the royalty in the Claymore and Piper Complex. The company said it also has the objective of making further investments during 2021 and at this point, the group outlined that a second material transaction is ‘at an advanced stage.’

Bramhill highlighted that the investment plays strongly to UJO’s technical and analytical strengths in oil and gas, dubbing the move as “a low-risk entry strategy to the North Sea.”

Reasons to UJO

West Newton

The UK focused onshore hydrocarbon explorer holds a 16.665% interest in PEDL183, containing the conventional West Newton A-1 discovery well and WNA-2 appraisal well. 

West Newton is located at the heart of the Zero Carbon Humber project area, which aims to promote decarbonising technologies across industrial activities in the wider Humber region.

In October 2020, it reported that the onshore West Newton B-1 ("WNB-1") well - the next well following the successful West Newton A-2 ("WNA-2") appraisal well - had been spud. 

Results from the drilling of WNB-1 are expected to inform a subsequent programme of testing to establish the well's productive capability as well as future drill operations.

North Kelsey

In recent months, UJO also increased its stake in the North Kelsey project by acquiring an additional 30% from Egdon Resources, taking its stake in the exploration project up to 50%.  

Further financial obligations will be equal between Union Jack and Egdon Resources, in line with both parties’ 50% stake in the North Kelsey Prospect which is located in Lincolnshire. 

The North Kelsey Prospect is a conventional oil prospect along trend from and analogous to the Wressle oil development, which lies around 15 kilometres to the northwest. 

The UK- focused group said the prospect has been mapped from 3-D seismic data and has the potential for oil in up to four stacked conventional Carboniferous reservoir targets.  

David Bramhill, Executive Chairman of UJO, described North Kelsey as “a low cost, drill-ready onshore acquisition for Union Jack in our focus area, consistent with our strategy.” 

He said a further stake in the project increases the group’s exposure to a “potentially value adding project” as well as expanding UJO’s balanced drilling and development portfolio. 

Subject to a successful farm-out, North Kelsey-1 is expected to be drilled during 2021. 

Follow News & Updates from Union Jack Oil here: