Union Jack Oil (UJO) and its joint venture partners are progressing with a conceptual development plan for the West Newton area as, predominantly, a gas development project.
The plan follows recent significant work undertaken by independent third-party experts. An extended well test (EWT) analysis has since indicated the potential for good well productivity from proposed new horizontal wells while underpinning the project’s strong economic returns.
Following this post EWT analysis, the joint venture partners now believe that the failure to establish commercial flow during the 2021 flow testing campaign was down to a combination of formation damage as well as poor distribution of acid during the acidisation operation.
The proposed conceptual development plan envisages a phased eight well gas development, which will target recoverable hydrocarbon volumes of 35 million barrels of oil equivalent with a sales gas component of 203 billion cubic feet ("Bcf"), the company told investors this morning.
This will involve an initial five well development drilling campaign, with first gas anticipated as soon as 2025, modelling plateau production rates of 44 million cubic feet per day of sales gas, with a further three wells to be drilled in 2028-2030, to maintain plateau production of sales gas.
The modelling plan indicates significant cash flow generation from the first year of production, which is anticipated in 2025, with cumulative gross cash flow calculated at circa $1.3 billion.
Based on RPS forecast of UK NPB gas price effective from April 2022, economic modelling by the operator has calculated a gross pre-tax NPV (10%) of $448m and a pre-tax IRR of 87%, based on recoverable sales gas and small volumes of associated liquids, for the plan.
Initial scoping work indicates a total pre-production capex of US$139 million for drilling and completion of the initial five well development, all production facilities and tie-in to the gas grid, with the following three wells to be drilled to be funded from operating cash flow.
The company added that future successful drilling results on follow-on exploration targets identified within the Greater West Newton Area (the Spring Hill, Withernsea and Ellerby Prospects) would be designed to utilise parts of the Conceptual Development Plan's infrastructure and add significant further potential value to the West Newton project.
Commenting, David Bramhill, Executive Chairman of Union Jack Oil said: "Located in an area that has access to both significant and relevant regional infrastructure and, with substantial additional exploration potential within the wider licence, the Conceptual Development Plan and a subsequent development decision at West Newton could deliver substantial volumes of low-carbon sales gas into the UK's energy market and could also facilitate further exploration activity and development potential within the Greater West Newton Area.”
"These studies and the resulting Conceptual Development Plan now see the commencement of an exciting new drilling phase for West Newton which will see Union Jack drill a high-impact well in 1H 2023 and multiple development wells at West Newton in the coming years."
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As a result of this morning’s news, analysts at SP Energy Angel plan to update its valuation for the conceptual West Newton gas project, pending further information from the Company.
“In our view, investors can now look forward to a busy period of planned drilling and development activity over the next 12 months that has the potential to unlock significant valuation upside for investors on assets such as Wressle and West Newton,” they said.
The next catalyst is expected to be Thursday’s AGM where shareholder approval for a capital reduction will enable Union Jack to introduce a cash dividend/share-buy-back programme. Analysts at Arden Research have also maintained their Buy rating for the company today.
UJO, which remains fully funded, including for any budgeted drilling activities for at least the next 12 months, has seen its shares rise by over 50% in three months, reaching highs of 31.4p.
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