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Union Jack Oil – Cracking News from West Newton but is it discounted in the share price?

By Peter Brailey | Thursday 10 December 2020

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Having had an involvement in UK onshore drilling decades ago, I follow the sector with interest, and just occasionally my cash. For some time now Union Jack Oil (UJO) has seen me invest and cross my fingers. West Newton has really interested me. Today’s news on the WN-B1Z drill results is a further very positive result, for what could be an exceptional find.

Wytch Farm in Dorset was an offshore sized field found onshore (strictly it is offshore and simply drilled from onshore) and has been an outlier for UK onshore oil & gas finds – its more than an order of magnitude larger than anything else. Many in the industry have told me over the years there must be more large onshore fields waiting to be found, rather than the typical small accumulations with the capability of a few million barrels of 2P reserves. West Newton may be a discovery to prove those comments over more than 30 years to be correct.

I must be clear – there is no way West Newton is anything close to Wytch Farm in size. The Dorset field is a monster, with more than 500 million barrels of oil equivalent expected to be produced! – West Newton is likely to be an order of magnitude smaller at best, but that still provides clear opportunity to be the second largest found onshore and comparable in scale to many more recent off-shore finds. That gets my attention.

Today’s WN-B1z initial well results are declared by Dave Bramhill (Executive Chairman at UJO) to be better than expected. Having met with Dave over the summer while I was on holiday (he is very lucky to live in my ancestral homelands and ongoing playground of North Devon!), I have come to realise he is one on the few AIM company Directors I trust to present matters honestly. When a company states a well result is better than expected, I immediately look for the hard evidence on what was expected to compare against the outcome. Of course the detail is never there! In this case I know I can trust the honesty of the statement.

Discovering and appraising an oil & gas field is all about steps. Discovery is only the start of a process, and likewise a step out drill is but another step along the way of realising profitable cashflow, which ultimately is the only thing that counts. This step out establishes there is a significant accumulation of Hydrocarbons over a significant plan extent (this was a 2.5km step-out to the WN-A2 well previously drilled).

The A2 well testing was suspended when put on test as liquids were identified, which was not expected. We are not told today if the hydrocarbons found in the B1Z well are gas or liquid. The next step in the process is to flow the wells (A2 and B1Z). This will confirm both hydrocarbon phase (Gas / Gas Condensate / Oil), unless the cores drilled from the well confirm this beforehand, and the initial ability of the hydrocarbons to flow to surface. The potential value upside on a liquids outcome is very significant, and I note the absence of establishing oil-water contact also provides further upside.

Of course all the above refers to the Kirkham Abbey formations, not the lower Cadeby formation which was drilled with the WN-B1 well prior to the side track. I had little expectation of this formation being a worthwhile target and the result did not discourage me or detract from the core investment case in my view.

With Wressle due into production early in the new year, with a planned 200 bopd net to Union Jack, and the company being cashed-up for next year and further interesting projects to be moved forward, I am very content to continue to hold and maintain my fingers crossed position that West Newton will vindicate so many comments I have heard over the years.

It is important to recognise each step of the appraisal process has technical and commercial success risk – that is the nature of hydrocarbon exploration and development and why I apply strict limits to my holding size in any small scale oiler. I am at that limit, otherwise I would be adding.

With the Market Cap at £36 million (0.18p share price) today, I see the potential for material further upside as matters unfold.  

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