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3 reasons to add United Oil & Gas #UOG to your Watchlist

The content of this blog (or content associated with it) is not intended as investment advice. The author holds an interest in the company mentioned. Please do your own research.

United Oil & Gas #UOG
Share Price: 5.25p
Market Capitalisation: £12.19m

“United Oil & Gas is an independent oil & gas start-up established in 2015. We are a former Tullow Oil team, with a strategy to acquire assets where the management team’s experience can drive near-term activity to unlock previously untapped value.”

CEO Brian Larkin:

“United has a clear strategy of acquiring, developing and unlocking the value of low risk projects in Europe, while seeking high impact exploration opportunities in Africa and Latin America”

3 Reasons to add United Oil & Gas #UOG to your Watchlist

United Oil and Gas were listed on AIM on 28th July 2017 and the speed at which they’ve been acquiring assets has been pretty impressive. Since their inception they’ve already done 4 deals, which involves 7 licences and I wouldn’t bet against further annoucements in the not too distant future.

Below are the 4 areas in which they’ve done deals.

1. ITALY

In July 2017, United Oil & Gas completed a farm-in agreement with Po Valley Energy to acquire a 20% working interest in the Podere Gallina Licence in the Po Valley region of Italy.

The licence contained the shut-in Selva gas-field as well as exciting exploration opportunities.

On 19th January, UOG released an RNS stating, “Strong gas flows on test have confirmed a significant commercial discovery for United Oil & Gas Plc at its Selva gas field in northern Italy”.

On the podcast (below) Brian reckons this discovery is worth around 180 bopd equivalent to Untied Oil and Gas. Whilst not a game changer, it provides the company with near term revenue ($3.9m (£2.81m) pa at $60 per barrel eqivalent) and fits well with their strategy of creating a portfolio with a balanced risk versus reward.

As you can see from the above table, there remains further exploration potential at East Selva, Fondo Perino and Cembalina.

 

2. WADDOCK CROSS FIELD & PL090 EXPLORATION

In August 2016, United Oil & Gas acquired First Oil’s stake in the PL090 licences, onshore UK. These include an existing onshore field and access to significant exploration opportunities.

The PL090 licences are situated in the Wessex Basin – a long-established productive basin that contains Wytch Farm, the largest oil-field in onshore Europe.

There are two parts to the PL090 licence – the Waddock Cross Field itself, and the exploration acreage beyond the boundaries of the field.

PL090 WADDOCK CROSS FIELD (26.25% EQUITY)

Existing 3D seismic is currently being reprocessed to optimise location of a sidetrack into the northern crestal part of the field, further above the oil-water contact. This will be completed in Q3 2017, at which point we will be in position to commence well-planning, with a potential spud-date in early 2018.

A successful well here could deliver rates in excess of 200bopd, with payback within 6 months.

3. LICENCE P1918 OFFSHORE SOUTHERN UK and ONSHORE UK LICENCES PEDL330 and PEDL345

On 19th January United has entered into a farmout agreement with Corallian Energy Limited to acquire an initial 10% interest from Corallian in each of three licences held by a joint venture between Corallian (60%) as operator and Corfe Energy Limited (40%) offshore and onshore southern UK, by way of paying 13.33% of the costs associated with the Colter well, planned for Q2 2018.

In addition, an option has been granted, which expires at the end of March, under which United can exercise a right to purchase an additional 10% interest in these licences, on the same terms as the Initial Farmed Interest.

The P1918 licence, includes the Colter discovery, adjacent to the largest onshore oil field in Europe, Wytch Farm, which has produced in excess of 450 million barrels of oil. This well is currently scheduled to spud in in Q2 2018.

Additionally, United and Corallian have established an Area of Mutual Interest for the area, enabling the partnership to identify and target further opportunities within the same play.

In relation to the Colter well a recent broker note stated the following:

We have factored in a long term oil price of US$65 per barrel from 2021, when production commences, flat over the life of the field.

After applying the appropriate levels of taxation to profits from production, we arrive at an indicative NPV for Colter of US$40m for United’s 20% interest. If we apply the CoS risk factor of 58.5% to this unrisked NPV, we arrive at a technically risked NPV of US$23.4m net to United’s interest.

The broker note also goes on to state:

The addition of Colter to United’s portfolio and the increase in the value of the company’s interest in Selva enables us to establish a new fully diluted valuation for United of 11.7p per share.

It should be noted that United possesses significant unrisked upside within its existing European asset portfolio. In addition, at this comparatively early stage we have not factored in any value from United’s collaboration with Tullow in Jamaica, which in the event of exploration success, has the potential to be transformative for United’s valuation.

At present, the well has been ascribed a 58% chance of success (CoS) which we have applied to our internal assumptions.

4. JAMAICA

On 27th November United signed an agreement with Tullow to farm-in to the Walton-Morant licence at a 20% equity interest,

Tullow entered the Walton-Morant licence, which covers an area in excess of 32,000km2, in October 2014.

In addition to securing a large portfolio of legacy 2D seismic data, Tullow also acquired a further 3,650km of 2D seismic in 2016 and 2017. Interpretation of the data set has identified attractive Cretaceous and Tertiary aged clastic and carbonate reservoir targets and Tullow now intends to conduct a 2,000km2 3D seismic survey in H1 2018 focusing on the high-graded Colibri lead.

The Walton Morant Licence, offshore Jamaica, offers a commanding Caribbean exploration opportunity with access to play diversity across three geological basins. Only 11 wells have been drilled in the area to date, and despite difficulties with well placement due to a lack of seismic control, 10 of these encountered hydrocarbon shows.

In relation to the Walton-Morant licence well a recent broker note stated the following:

Given that we would expect an exploration well to cost up to US$40m, a 20% interest for a junior company such as United is a major undertaking. As such we would expect Tullow and United to farm down its interests as a joint venture partnership to a global major with the intention of acquiring a carried interest on a high impact exploration well.

Given the early stage nature of this Jamaican offshore play, ascribing a valuation to United’s interest would largely reflect guesswork. However, using high-level cost estimates, a notional 200 mmbbls development in this water depth is likely to have a gross NPV in excess of US$600m.

It is important to note that indicative NPVs should not be examined on a standalone basis given that exploration success will de-risk future drilling significantly and has the potential to open up a new multi-billion barrel offshore play in Jamaica.

 

United Oil and Gas has been created by two former members of Tullow Oil and seem to have ambitions to replicate it’s success.

As a reminder, Tullow Oil was founded by Aidan Heavey in 1985, who had no oil industry experience, no money and no local market

By 2007 Tullow was operating in 23 Countries, employed 370 people, were producing 73,100 bopd, had a market cap of $17bn and was the 30th biggest company within the FTSE 100.

 

CHIEF EXECUTIVE OFFICER – BRIAN LARKIN

Brian is the founding director of United Oil and Gas Limited.

He is a Qualified Accountant and has an MBA from Dublin City University. He has extensive oil and gas industry experience having worked for both Tullow Oil Plc and Providence Resources Plc. At Tullow Oil, Brian held positions in both finance and commercial, and worked on a variety of production, development and exploration projects in South America and Asia and carried out numerous investment case recommendations.

CHIEF OPERATING OFFICER – JONATHAN LEATHER

Jonathan has 18 years experience in the oil industry and holds a Geology degree from Oxford University, a PhD in Sedimentology from Trinity College, Dublin, and an MBA from Warwick University.

He worked for Tullow Oil from 2007 to 2015, where he held a number of senior positions, including membership of the Global Exploration Leadership Team. He also managed Tullow’s Subsurface Technology Group – a team he established and built up to provide specialist technical input across the company in both exploration and development. As part of this, he worked on global assets and opportunities ranging from onshore producing fields to deepwater frontier exploration.

Prior to Tullow Oil, Jonathan worked for Shell UK Ltd. During his time there he was involved in a number of exploration and development projects, and worked on North Sea, European, Middle Eastern and Malaysian assets.

 

United Oil & Gas’s market capitalisation is currently £12.19m and their share price is 5.25p. The recent broker note from Optiva Securities puts a target price of 11.7p but this was before the results of gas flow rates at Selva Field in Italy were published and excludes it’s Jamaican interests.

Gas flow rates at Selva exceeded expectations and Optiva suggest that the Walton-Morant licence could, “have a gross NPV in excess of US$600m” and, “that indicative NPVs should not be examined on a standalone basis given that exploration success will de-risk future drilling significantly and has the potential to open up a new multi-billion barrel offshore play in Jamaica.”

So if 6.5p of value is attributable to the NPV of $23.4m at the Colter Well, the mind boggles what the share price value is attributable to the $600m NPV at Walton-Morant licence in Jamaica.

Of course it’s probably not as simple as this but Optiva do say, “With United’s current share price now covered more than two times by our conservative valuations of United’s projects in the UK and Italy, we believe that the company’s exposure to Jamaica represents very exciting long term upside.”

 

For a £12m market cap company that has only been listed for, just over, 6 months, United Oil and Gas have created an impressive amount of project plays, which range from near term cash flow to truly gamechanging. Each deal has several options within it, which could futher increase United’s potential beyond what’s been reported and by the sounds of it, this deal flow isn’t getting switched off.

News flow will be none stop this year.

It won’t be long before production starts at the Selva gas field, in Italy, generating revenue for them and this could be around about the same time they spud wells at Colter and the Waddock Cross Field. This could also be around the same time Tullow releases the results of the 3D seismic on the high-graded Colibri lead, in Jamaica. Before this UOG could farm out some it’s holding there and all this may come after them announcing news on other potential prospects.

As Brain says, “United has a clear strategy of acquiring, developing and unlocking the value of low risk projects in Europe, while seeking high impact exploration opportunities in Africa and Latin America”.

We’ve seen the European and Latin American projects but they’ve yet to reveal the African opportunity.

All this news combined with a little success means it shouldn’t be long before the share price starts to react accordingly.

To add United Oil & Gas #UOG to your Vox Markets Watchlist, click here and tap the, “Follow”, button

The content of this blog (or content associated with it) is not intended as investment advice. The author holds an interest in the company mentioned. Please do your own research.

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Mentioned in this post

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United Oil & Gas