Jersey Oil & Gas Set To Move Up

In the AGM Update Jersey Oil & Gas (LON:JOG), published in the middle of last week, the group declared that the General Election is something of an impediment in the making of some important decisions on the Buchan Oilfield developer’s progress.

The Business

The £40m capitalised independent upstream oil and gas company ‎is focused upon the UK Continental Shelf region of the North Sea.

It has an asset portfolio centred on developing homegrown North Sea resources that support the UK’s energy requirements as it transitions towards net zero. 

In the Greater Buchan Area, the group holds a 20% interest in each of licences P2498 (Blocks 20/5a, 20/5e and 21/1a) and P2170 (Blocks 20/5b and 21/1d) located in the UK Central North Sea.

NEO Energy, which is the Buchan Operator, continues to make good progress on advancing the work programme required to enable project sanction. 

The AGM Update

The AGM Update stated that completion of the necessary engineering work is on track and that the first offshore survey was completed in May, obtaining the geophysical data used for the subsea and drilling rig contract tendering process.  

JOG noted that a second survey to obtain geotechnical data is scheduled to commence this month.  

Following the receipt of fiscal clarity and subject to FDP approval, the major contract awards and capital commitments for the project are now expected in 2025, which leads to Buchan first production being targeted for late 2027.  

Under the current fiscal policy, the company’s valuation of the Buchan redevelopment project does not materially change due to the later first production date.

Management Comment

CEO Andrew Benitz stated that:

“With a UK General Election now announced, we are hopeful that fiscal clarity will be forthcoming in short order so that the industry can continue to do what it does best, namely investing in major capital projects that deliver vital low carbon homegrown energy and highly skilled jobs. 

In the case of the Buchan field, we have a project that will deliver a meaningful contribution to the energy transition process through our electrification strategy, which helps facilitate investment in cutting-edge floating offshore wind.”

The Equity

There are some 32,667,627 shares in issue.

Larger holders include Interactive Investor Services (7.49%), James Baldwin (5.50%), AJ Bell Securities (4.22%), Barclays Bank (Private) (4.13%), Janus Henderson Investors (3.67%), ICBC Standard Bank (3.58%), Quilter Cheviot (3.47%), Ronald Lansdell (3.27%), Royal Bank of Scotland International (3.15%), and UBS Asset Management (Americas) (2.98%).

Brokers’ Views

Analyst Daniel Slater at Zeus Capital states that:

“Our view remains that, assuming it forms the next UK government, Labour will find it very challenging to take a decision to make UK oil and gas taxes even less favourable than currently.

We believe that Labour is more likely at worst to maintain the current tax burden, and more likely map out a route to reducing it, and we would expect that Labour’s view here should become apparent post the ongoing election, possibly as soon as this autumn.

We believe this clarity will then pave the way for increased UK oil and gas CAPEX spending, and Buchan FID in 2025.”

Slater concludes that the group’s shares are trading at a substantial discount to the Zeus Capital total risked NAV of 617p, but he does expect to see news flow this year and into next, plus the ever-decreasing time to Buchan first oil, as having the potential to help close that valuation gap.

Over at Cavendish Capital, its analyst Jonathan Wright has placed his previous Price Objective of 534p under review following the AGM Update, while he adjusts the valuation for the shift in project timing.

Somewhat more positively he notes that JOG remains fully funded, with current cash of over £13m, an annual cash burn of £3m, a full-carry on the Buchan project FDP process and a further US$20m of cash milestone payments due from its partners, NEO and Serica, upon Buchan FDP approval.

He states that JOG also benefits from a full-carry to first oil on its share of the Buchan development costs approved in the FDP.

At WH Ireland, analyst Brendan Long states that the exact timing for achieving key milestones and project sanction will depend on the results of the election and on the fiscal clarity provided by the UK Government following the election.

“We expect that the fiscal policy for the UK North Sea following the UK General Election will be favourable for domestic energy security, HMRC tax revenues, UK jobs and the production of energy on a low carbon emissions basis.

In effect, we anticipate the UK Government will provide fiscal clarity such that the operator of the Buchan redevelopment will have sufficient confidence in the fiscal regime to progress with project sanction.”

Furthermore, the analyst reiterates the broker’s view of a fair value estimate of 705p a share for JOG.

“We remind investors of our view that the Buchan field is overwhelmingly the best undeveloped oilfield of its kind in the UK North Sea in terms of it being of considerable scale and low-risk.”

My View

It is clear that, Government decisions aside, the Buchan redevelopment project has been making good progress and that following various farm-out transactions the company has sufficient cash going forward to meet its commitments.

The group’s strategy is focused upon delivering shareholder value and growth through asset development, creative deal-making, and accretive M&A deals.

The broker’s that follow the group closely have valuations of between 500p to 700p for the group’s shares, based upon production in 2027.

Until that time the company’s shares will be a somewhat speculative counter.

In the last year they have peaked at 268p each, that was in late November, but subsequently eased back to 143p by mid-May, upon the 2023 results being published.

However, they do look to be a very good punt at the current price of only 120p and as such I now set a Target Price of 150p, which looks extremely possible in the near-term.

(Profile 13.06.24 @ 120p set a Target Price of 150p)