Union Jack buying another 12.5pc of Wressle project

Union Jack Oil has agreed to acquire a further 12.5% economic interest in PEDL180 and PEDL182 containing the Wressle hydrocarbon development project, it announced on Monday, from Humber Oil & Gas for £0.5m cash.

The AIM-traded firm said the deal would increase its interest in Wressle to 40%, adding that it would be value accretive, and would increase its 2P reserves and 2C contingent resource base at Wressle by 45.5%.

It said the internal rate of return was 46%, and said the project economics remained “strong” in the current oil price environment, with a cash break-even oil price estimated at $17.62 per barrel.

Planning approval for the Wressle project was in place, and development was underway, the board noted.

The economic impact on the firm of establishing first oil at Wressle during the second half of 2020 was described as “financially transformative”, with that set to be enhanced by the acquisition.

A deferred consideration of £1.04m would be paid to Calmar on ‘first commercial oil’.

Union Jack said it remained in a “strong” financial position, with current cash reserves of more than £5.5m, adding that it was fully funded for its existing drilling, testing and development commitments on all of its projects during 2020.

“This acquisition is important to Union Jack and increases our interest in Wressle, with production anticipated to commence during the second half of 2020, from 27.5% to a material 40%,” said executive chairman David Bramhill.

“The terms of the acquisition are compelling and this transaction is significantly asset value accretive from the outset, reaffirming Union Jack's commitment to the development of Wressle and will assist in delivering the company's goal to become a mid-tier producer in the medium term.

“The acquisition has an immediate positive impact on Union Jack by increasing its reserves and resources at Wressle by 45.5% to in-excess of 1,240,000 barrels of oil equivalent.”

Bramhill said the development of Wressle was continuing “apace”, with first oil anticipated in the second half.

“When Wressle is commissioned and in production, it will result in an initial constrained production anticipated to be 500 barrels of oil per day gross, adding production of 200 barrels of oil per day net to Union Jack and transforming the company's financial position.

“The justification for Union Jack acquiring an additional interest in Wressle is our expectation of the transformative economic impact on the company.

“We believe that when commercial oil production at Wressle is established, it will provide Union Jack with meaningful cash revenues.”

After taking operating costs into consideration, Bramhill said estimated net revenues were expected to “propel” Union Jack to a profitable revenue generating oil and gas production company.

“Wressle also possesses several additional upside value drivers, which include the economic impact of the possible production of gas and electricity sales over and above that used on site and the additional significant contingent resource volumes within the Penistone Flags reservoir.”

At 1256 BST, shares in Union Jack Oil were down 0.5% at 0.2p.