Union Jack Oil buys royalty interest over North Sea assets

Onshore UK exploration, development and production company Union Jack Oil has purchased a 2.5% cash generating royalty interest from Cambridge Petroleum Royalties (CPRL), it announced on Monday, that is part of the royalty unit over 20% of the revenues from oil and gas production from the Claymore, Piper and Scapa oilfields in the central North Sea.

The AIM-traded firm said total consideration, including working capital adjustments, was $0.13m (£0.09m), paid from its existing cash balances.

It described the assets, known as the Claymore and Piper complex, as an “attractive, cash generating and high yielding” investment, consistent with its wider strategy and objectives to invest in the UK oil and gas sector.

The assets offered “superior” financial returns from North Sea oil and gas production, and generated a “compelling” estimated internal rate of return of about 129%, the board said.

It said it would be a cash-generating investment, with an estimated 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.

Payback, including accrued royalty payments of the original investment, was estimated to be less than 12 months.

Union Jack said they would benefit from an indirect contractual exposure to North Sea offshore oil and gas production revenues without any ongoing capital investment, decommissioning and joint venture operating costs.

The transaction would represent the first such royalty investment in the Claymore and Piper Complex by Union Jack, with further transactions planned for 2021, with the board noting that a second material transaction was 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 executive chairman David Bramhill.

“The royalty provides Union Jack 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.

“The royalty's superior returns and cash flow characteristics are consistent with Union Jack's wider strategy and objectives to invest in the UK oil and gas sector.”

Bramhill said the acquisition was the company’s first royalty investment over the Claymore and Piper Complex's future oil and gas revenues, where it had the objective of making further investments during the year.

“Encouragingly, a second material transaction is at an advanced stage.

“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.”

At 1027 GMT, shares in Union Jack Oil were up 14.44% at 38.62p.