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United Oil & Gas is transformed by acquired production and all of Jamaican asset

Snapshot

  • Assets in the UK, Egypt, Italy and West Indies
  • A producer thanks to Rockhopper Egypt deal
  • Now owns all of Jamaica project
  • Preserves cash, reduces capex, non-core divestments
Isle of Wight

Quick facts: United Oil & Gas PLC

Price: 2.87 GBX

AIM:UOG
Market: AIM
Market Cap: £17.94 m
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Walton Morant has the potential to have a major impact on United Oil & Gas and we are delighted to have successfully concluded an agreement with the Jamaican government to take on operatorship and to develop this licence for the benefit of all stakeholders.

Brian Larkin, chief executive | August 3 2020

How is it doing

UOG has bought Rockhopper Exploration’s Egyptian asset portfolio, which will deliver United’s first production operation along with further development and exploration upside.

It constitutes a reverse takeover and United is paying US$16mln to acquire the Egyptian assets with the deal partially supported by a financing deal with BP, which will provide US$8mln, along with a share placing to investors and a US$5mln issue of equity to Rockhopper.

Upon completion, the Abu Sennan concession is yielding around 1,700 barrels oil equivalent per day net to United – which is nearly double the rate at the time that the deal was agreed.

The underlying operation producing around 7,900 boepd – thanks to the recent addition of a new well (ASH-2).

ASH-2 alone, in December, achieved a rate of 7,027 boepd during testing and it has been onstream, producing more than 3,000 boepd since the start of January. Another new well, El Salmiya-5, was spudded in early February and it is targeting multiple reservoirs.

El Salmiya-5 is one of four fully funded well that are being drilled within the Abu Sennan concession this year.

In Jamaica, the Walton Morant/Colibri prospect is estimated to contain 229mln barrels of prospective resources.

Tullow extended ‘drill or drop’ deadline to July as joint farm-out talks progress with ‘interested parties’. A new partner would support funding for the first well, which was originally pencilled in 2020 (now presumably subject to any deal timeline).

In early August, United took full ownership of the licence (acquiring the 80% previously held by Tullow) and secured an 18-month extension from the government.

United now has until January 31, 2022, before the drill-or-drop decision is required.

The company plans to complete a work programme to further de-risk Colibri and perform detailed interpretation of the numerous follow-on targets, including Moonraker, Thunderball, Moneypenny, Jaws, Goldfinger, Vesper, Oriole, Earspot and Rumpspot.

It is believed this work will have a significant impact on the continuing farm-down process, the group added.

Selva in Italy was originally scheduled to begin production in 2020 at a targeted rate of 150,000 cubic metres of gas per day, which it would deliver significant cash flow to United says the company.

Awarded four blocks in the Central North Sea in 31st licensing round that includes the Zeta prospect, which United estimates could contain over 90 million barrels of in-place oil.

UOG recently agreed the sale of the Crown Discovery assets in the North Sea for US$5mln.

What the boss says: Brian Larkin, chief executive

"Operating costs in Egypt are cheap, the drilling costs are cheap and the exploration upside is low-risk.

"So it's a perfect fit for our business model at this stage of our growth."

Latest video interview

Responding to coronavirus impacts

In early April, United highlighted strong production growth in Egypt whilst detailing its response to “considerable challenges” amidst the coronavirus (COVID-19) pandemic and weak crude prices.

Production in Egypt measures around 8,400 barrels oil equivalent per day (boedp) gross, the company said, which equates to 1,850 boepd net.

Significantly, the volumes are materially higher than they were when United agreed to acquire the Abu Sennan assets from Rockhopper Exploration PLC (LON:RKH). United noted that Abu Sennan is positioned as a low-cost operation, at around US$6.5 per barrel, adding it also provides “solid” margins even with the currently low prices.

United said it has taken proactive measures to reduce near-term capital expenditure (capex) as a result of the current crisis. It said deferrals in Italy haved move ‘first gas’ into the first half of 2021, but, improves cash flow in the nearer term.

Similarly, United noted the deferral of two of four previously planned wells in Egypt which will significantly reduce expected capex for 2020. Further optimisation of capex and opex continues to be reviewed, the company added.

It is also seeking to divest non-core assets in the UK’s Wessex basin, and has decided against exercising its farm-in option in Benin.

The company told investors that the decisions it is taking are expected to minimise the impact of oil-price uncertainty and COVID-19, and help safeguard the company during this challenging time.

What brokers say

Broker Cenkos has described as a “pivotal moment” United’s receipt of approval from the Jamaican government to take forward the Walton Morant Licence with the initial exploration period also extended for 18 months.

“We view the award of the Walton Morant licence as a huge endorsement of the United team and its capabilities to operate a frontier, deep-water licence,” said Cenkos, reiterating its ‘buy’ advice after increasing its net asset valuation of United to 17p a share.

Prompting the Cenkos valuation change was a re-assessment of the Colibri prospect now that the AIM-listed explorer is the full owner of Walton Morant. On its own, the 229mln barrel opportunity is worth 7.1p (or more double the current share price).

“Colibri is optimally-located to test the offshore Jamaica petroleum system and has been further supported by the recent identification of an active oil seep to the south of the structure,” said Cenkos.

“Success at Colibri would also significantly de-risk the follow-on potential across the rest of the basin.”

The broker points out that while exploration of the sort set to be carried out by United is risky, “there is compelling evidence that a working petroleum system is present in Jamaica”, adding that eleven wells have been drilled to date, “with all bar one indicating hydrocarbon shows”.

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