Union Jack Oil plc (LON:UJO) an onshore exploration and production company with a focus on drilling, development and investment opportunities in the United Kingdom hydrocarbon sector, is pleased to announce its audited results for the year ended 31 December 2017.
Operational Highlights
> Portfolio expanded with selective, value accretive asset transactions through further interests in Wressle and Biscathorpe
> Proven resources and reserves increased
> Oil production profile expanded via acquisition of interests in Fiskerton Airfield and Keddington oilfields
> Prepared for the drilling of two significant conventional prospects Biscathorpe-2 and Holmwood-1
Financial Highlights
> Cash balance in excess of £2.0 million as at 30 April 2018
> £1.25 million (before expenses) raised in March 2018 to expand further the Company’s asset portfolio
> The Company remains debt free
David Bramhill, Union Jack Oil PLC Executive Chairman, commented: “Considerable progress was made in the year under review and in the period up to the signing of these financial statements.
I am enthusiastic in respect of the year ahead and I look forward to reporting progress with our current projects and new acquisitions during 2018 and beyond.
The objective of your Board remains to build a sustainable and profitable conventional onshore hydrocarbon production and development business.”
CHAIRMAN’S STATEMENT
The objective of the Board remains to build a sustainable and successful conventional onshore hydrocarbon production and development business. In this respect, we have had another successful year in expanding our high-quality portfolio of licence interests.
Considerable progress was made in the year under review and in the post balance sheet events period up to the signing of these financial statements that represents a period of solid progress with the highlights being:
> expanding our portfolio with accretive asset value selective transactions with further interests in Wressle and Biscathorpe;
> increased our proven reserves, and level of resources;
> continue to build our oil production profile by the addition of an interest in the producing Fiskerton Airfield oilfield and the acquisition of
a further interest in the Keddington oilfield; and
> prepared for the drilling of two significant conventional prospects.
We have expanded our asset base by the acquisition of:
> a further 3.33% interest in PEDL’s 180 and 182 containing the significant Wressle discovery bringing our interest to 15%;
> a 20% interest in the producing Fiskerton Airfield oilfield which in the opinion of the Board holds scope for a significant upgrade in production going forward;
> a further 10% interest in PEDL253 containing the attractive conventional drill-ready Biscathorpe-2 prospect that is expected to be drilled around mid-year 2018 as a result of a farm-in and as a post balance sheet event, increasing our interest to 22%; and
> a further 10% interest in the producing Keddington oilfield contained within Cairn Energy’s onshore portfolio purchased during 2017 bringing our interest to 20%.
PEDL180 / PEDL182 WRESSLE DISCOVERY (15%)
BROUGHTON NORTH PROSPECT (15%)
Located in Lincolnshire, on the western margin of the Humber Basin, PEDL180 and PEDL182 contain the substantial conventional Wressle oil discovery with proven reserves and significant upside from which first commercial oil is expected to flow at a constrained rate of 500 barrels of oil per day gross. Union Jack holds a 15% interest in both licences including the Wressle-1 oil discovery awaiting development.
During testing, the Wressle-1 discovery well flowed an aggregate of 710 barrels of oil equivalent per day from the three zones tested. Subsequent to testing and the decision by the joint venture to declare commerciality status on the project, an independent Competent Persons Report was prepared by ERC Equipoise (“ERCE”) that provided Reserves, Contingent and Prospective Resources associated with the Wressle-1 discovery and Broughton North Prospect. The findings of ERCE are highlighted within the Review of Operations section of this Annual Report.
In January 2018 the Planning Inspectorate denied appeals in respect of the development of the Wressle discovery.
Following this decision the operator announced its intention to submit two new applications to the North Lincolnshire Council, one to extend the existing planning consent for a further year and the second for the field development of the Wressle discovery. The first application was submitted during April 2018.
In respect of the second application, since January 2018 the operator has drilled two deeper cored groundwater boreholes in addition to the investigation boreholes previously drilled. The data from these operations are being used to support this application which will contain a revised site design and hydrological risk assessment. Once the operator has received and integrated the results of the hydraulic conductivity tests executed on the core samples, the second application will be submitted to the North Lincolnshire Council in May 2018. This new application will address the stated points raised by the Planning Inspector.
The joint venture partners remain confident that the Wressle development will be brought to production status and will continue to pursue all credible avenues to achieve this objective. An Environment Agency permit for production is already in place in respect of the development.
PEDL253 – BISCATHORPE (22%)
PEDL253 is within the proven hydrocarbon fairway of the South Humber Basin and is on trend with the Saltfleetby gasfield, Keddington oilfield, the Louth and North Somercotes prospects and contains the Biscathorpe Prospect.
The current Best Estimate is a gross Prospective Resource of 14 million barrels of oil with a geological Chance of Success of 40%.
The Biscathorpe Prospect is a well-defined, four-way dip closed structure mapped from recently re-processed 3D seismic. The Biscathorpe-1 well drilled by BP in 1987 encountered a thin oil filled sandstone which is expected to thicken down-dip.
The Biscathorpe-2 conventional well will be located in a direction towards a potentially thicker sand development within the structural closure of the trap.
Partner approval has been granted to drill Biscathorpe-2 around mid-year 2018.
During 2017, Union Jack commissioned an independent review of the Biscathorpe 3D conducted by geophysical consultants Sotwell Exploration Ltd (“Sotwell”). The findings were encouraging and confirmed the Biscathorpe “concept” with good evidence from seismic attributes for the sand thickening away from the current well location which in the opinion of Sotwell, the Biscathorpe-2 location to appraise the prospect appears optimal. In addition, Sotwell’s belief is that the whole area is very attractive for hydrocarbon exploration and that a “mega” play trap is potentially feasible with significant stratigraphic upside potential. According to the operator, if the stratigraphic closure is proven the, gross Prospective Resources could increase to circa 35 million barrels of oil (P10).
The proposed Biscathorpe-2 well will involve conventional drilling for oil trapped in a sandstone reservoir and for clarity the operations at the site will neither now, nor in the future involve the process for hydraulic “fracking” for shale gas or shale oil.
PEDL143 – HOLMWOOD (7.5%)
Holmwood is a conventional oil prospect located in the Weald Basin and was first identified by BP in 1988 and is estimated to hold gross mean un-risked Prospective Resources of 5.6 million barrels of oil with a geological chance of success of 50%. Further upside resource potential exists from the Jurassic Kimmeridge limestones and there is believed to be the presence of multiple potential pay zones.
The proposed drill site for the Holmwood-1 exploration well is approximately 12 kilometres immediately west of, and of similar stratigraphy to the important Horse Hill discovery.
Holmwood-1 is a conventional exploration well and is currently expected to be drilled in late 2018.
EXL294 FISKERTON AIRFIELD OILFIELD (20%)
Union Jack purchased a 20% economic interest including surface infrastructure and facilities in this producing oilfield in November 2017. The oilfield has had workovers on wells FA-1 and FA-3 with a view to enhancing cash flows by increasing production via low-cost well interventions, installation of new tubing, pumps and the isolation of water producing zones.
The workovers of FA-1 and FA-3 were successfully completed in the period January to March 2018.
Production operations have resumed at Fiskerton and initial field production, prior to further optimisation and further operations during the coming period, including the increasing of the pumping rate, is approaching 30 bopd of good quality (35.2° API gravity) oil, a significant increase on the pre-workover rate of 16 bopd.
Oil production since resumption of operations to date exceeds 1,250 barrels gross and product is being sold and transported by road tanker to a refinery at Immingham, North East Lincolnshire.
The Company believes there is upside potential in the oil resources at Fiskerton Airfield. Union Jack is funding a 3D seismic re-processing exercise on behalf of the joint venture partners to assist in re-mapping a 24 square kilometre area surrounding Fiskerton Airfield to identify further production opportunities from the reservoir. It is expected that initial interpretations from the 3D seismic processing will be available during H1 2018.
Subject to the results of the 3D seismic re-processing, the joint venture partners will investigate the potential to further increase production through in-fill drilling.
PEDL203 KIRKLINGTON OILFIELD (16.67%)
PEDL118 DUKES WOOD OILFIELD (16.67%)
Union Jack acquired these licence interests in October 2017, through the purchase of Cairn Energy plc’s entire onshore UK portfolio. These licence interests contain previously producing oilfields that are currently shut-in.
PEDL203 contains the Kirklington oilfield that was originally discovered by BP in 1985 and produced oil from two Carboniferous reservoirs.
The Kirklington-3 and 3-Z sidetrack wells were drilled in 2010 and produced oil from only one of nine potential pay zones until mid 2013. The Kirklington 3-Z well is currently shut-in and production facilities have been preserved on a care and maintenance basis. Should a future production decision be taken, the existing production facilities can be made production ready once remedial work has been conducted to site equipment.
PEDL118 contains the Dukes Wood oilfield originally discovered by a predecessor company to BP in 1939. The oilfield was decommissioned in 1966 having produced approximately 6.5 million barrels of oil from a mapped 25.6 million barrels of oil in place representing a recovery factor of 24.5%.
The Dukes Wood-1 well was drilled in 2010 and encountered three hydrocarbon bearing reservoir zones, the Ashover Grit, Crawshaw sandstone and Loxley Edge Rock, all of which were flow tested.
Various studies are currently ongoing at both Kirklington and Dukes Wood to identify reservoir zones containing previously unproduced or undrained resources. These studies will evaluate completion and enhanced recovery operations, both mechanical and chemical, which could be applied to the unswept oil reservoirs that are present that could justify re-establishing production from either oilfield.
PEDL005(R) KEDDINGTON OILFIELD (20%)
Keddington is currently producing approximately 22 barrels of oil per day (gross) from Carboniferous age sandstone reservoirs from the Keddington 3-Z well. Recent mapping of the 3D seismic over the producing Keddington oilfield has indicated areas of potentially unswept oil within structural closure. Comprehensive geophysical and geological evaluation is ongoing to better define the greater Keddington area.
PEDL005(R) contains the Louth Prospect which also extends into PEDL339 (20%). Louth is defined on reprocessed 3D seismic data and is estimated to contain STOIIP of 5.5 million barrels of oil and gross mean Prospective Resources of 1.2 million barrels of oil with an attractive chance of success of 37%.
In addition, the entire North Somercotes gas prospect is within PEDL005(R) which is estimated to contain gross mean Prospective Resources of 11 billion cubic feet of gas with a chance of success of 25%.
OTHER ASSETS
Other assets held by Union Jack include interests in, North Kelsey PEDL241 (20%), Burton on the Wolds PEDL201 (10%), PEDL339 (10%) which contains an extension of the Louth Prospect and PEDL209 (10%).
A detailed review of Union Jack’s asset base can be found in the Review of Operations section within this Annual Report.
CORPORATE AND FINANCIAL
Union Jack remains debt free and our cash balance as at 30 April 2018 stands in excess of £2 million, with sufficient funds to cover the cost of drilling our expanded interest in Biscathorpe-2, Holmwood-1 and surplus working capital for at least a 12 month period from the date of approving the financial statements.
During March 2017, the Company acquired a further 3.33% in PEDL180 and PEDL182 containing the Wressle oil discovery from Celtique Energie Petroleum Limited for a consideration of £600,000. As a result, the Company holds a 15% interest in these licences.
During October 2017, the Company acquired the entire on-shore portfolio of Nautical Petroleum, a subsidiary of Cairn Energy plc.
During March 2018, and as described in the Events After the Balance Sheet Date note, the Company raised £1.25 million before expenses in an oversubscribed placing. A portion of the funds raised have allowed Union Jack to increase its interest by a further 10% in PEDL253 containing the Biscathorpe-2 Prospect which is expected to be drilled around mid-year 2018. Following this transaction the Company now holds a 22% interest in PEDL253.
In addition, after the Balance Sheet Date, the Company entered into a Commercial Partnership with UK based Humber Oil & Gas Limited (“Humber”).
The first collaboration was a farm-in involving Humber and Union Jack in March 2018 for a combined 20% interest in PEDL253, with each of the companies acquiring a 10% interest.
We are currently working with Humber on other investment opportunities and look forward to
announcing further attractive projects as and when they come to fruition.
G.P (Jersey) Limited, an entity with connections to the management of Humber, owns 10% of the issued share capital of Union Jack.
I would customarily like to take this opportunity to thank my co-directors, Joe O’Farrell, Graham Bull and Ray Godson for their continued support and professional advice throughout the year. This same comment also applies to our advisers, all of whom assist in the efficient running of Union Jack, and of course to our shareholders.
I welcome Matt Small as Company Secretary following the sad passing of Brian Marshall who served Union Jack loyally from its incorporation as Company Secretary and Financial Controller.
SUMMARY
I remain very optimistic in respect of Union Jack’s future prospects as we have:
> assembled an attractive portfolio with proven reserves, contingent resources and drill-ready prospects;
> interests in two producing oilfields;
> a 15% interest in the significant Wressle oil discovery;
> two significant potentially high-impact exploration wells planned to be drilled in 2018;
> continued to remain debt free; and
> in excess of £2 million in cash balances.
We look forward to the drilling of Biscathorpe-2 in mid 2018 and Holmwood-1 currently scheduled for late 2018. Expectations are high in respect of both these excellent prospects. A modicum of success on either would have a significant positive effect on the Company.
Again, I am confident of a resolution to obtaining a positive development decision at Wressle which, if and when positively determined (as we believe it will), would result in a material transformation to the cash flows of Union Jack.
Our asset portfolio is well balanced with the relevant components of production, development, appraisal and discovery that are all in place as is adequate funding for our commitments going forward.
The future of Union Jack remains bright.
David Bramhill
Executive Chairman
1 May 2018
