TIDMUJO
RNS Number : 1768S
Union Jack Oil PLC
15 March 2021
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement
15 March 2021
Union Jack Oil plc
("Union Jack" or the "Company")
Purchase of a Royalty Interest in the Claymore, Piper and Scapa
North Sea Oilfields
Union Jack Oil plc (AIM: UJO), a UK focused, onshore hydrocarbon
production, development and exploration company is pleased to
announce the purchase from Cambridge Petroleum Royalties Limited
("CPRL") of a 2.5% cash generating royalty interest ("Acquired
Interest") that is part of the royalty unit over 20% of the
revenues from oil and gas production from the Claymore, Piper and
Scapa oilfields located in the Central North Sea, known
collectively as the Claymore and Piper Complex (the "Royalty") for
a total consideration, including working capital adjustments, of
US$130,000 (GBP93,730) and paid from the Company's existing cash
balance.
Highlights
-- An attractive, cash generating and high yielding investment,
consistent with Union Jack's wider strategy and objectives to
invest in the UK oil and gas sector
-- Offers superior financial returns from North Sea oil and gas production
-- Generates a compelling estimated Internal Rate of Return ("IRR") of approximately 129%
-- Cash generating investment with an estimated average annual
compound yield estimated at 16.5% over the life of the Royalty,
superior to high street banks, other fixed interest, or treasury
investment alternatives
-- Payback, including accrued royalty payments of the original
investment, is estimated to be less than 12 months
-- The Company benefits from an indirect contractual exposure to
North Sea offshore oil and gas production revenues without any
ongoing capital investment, decommissioning and joint venture
operating costs
-- Represents the first such royalty investment in the Claymore
and Piper Complex by Union Jack with further transactions planned
for 2021 and where a second, material transaction is at an advanced
stage
David Bramhill, Executive Chairman of Union Jack Oil commented:
"This compelling investment in a cash generating royalty over the
Claymore and Piper Complex's oil and gas revenues, plays strongly
to the Company's technical and analytical strengths in oil and gas
and represents a low-risk entry strategy to the North Sea while
generating superior investment returns.
"The Royalty provides Union Jack with the benefits of an
attractive cash flow stream and high yields from North Sea oil and
gas production without the accompanying capital and operating costs
associated with direct participation in the underlying oil field
developments and infrastructure.
"The Royalty's superior returns and cash flow characteristics
are consistent with Union Jack's wider strategy and objectives to
invest in the UK oil and gas sector.
"This initial acquisition represents our first royalty
investment over the Claymore and Piper Complex's future oil and gas
revenues and where we have the objective of making further
investments during 2021. Encouragingly, a second material
transaction is at an advanced stage.
"The objective of Union Jack remains to become a mid-tier
producer and we see that is now within our grasp with development
and free-flowing oil demonstrated at Wressle, the execution of the
upcoming well tests at West Newton and planned drilling at
Biscathorpe. All these projects are at an advanced stage and
evidence significant progress towards our aim."
Financial Merits of the Royalty
The financial benefits of the ownership of a royalty interest
over the revenues of a producing oil and gas field include:
-- Generation of an annuity type cash flow
-- No exposure of the royalty investor to the underlying field capital or operating costs
-- No exposure to field decommissioning costs
-- Cash payments are made to the Royalty investor net of
upstream government levies which, in the case of the North Sea, is
the Petroleum Revenue Tax ("PRT") which was permanently zero rated
in 2016
Independent estimates by Oil & Gas Advisors Limited indicate
that there remains a minimum of ten years of further economic
production life in the Claymore and Piper Complex with the Royalty
generating a superior financial return for Union Jack during that
time:
-- Generates a compelling estimated Internal Rate of Return ("IRR") of approximately 129%
-- Cash generating investment with an annual compound yield
estimated at 16.5% over the life of the Royalty, superior to high
street banks, other fixed interest, or treasury investment
alternatives
-- Payback of the original investment, including working capital
adjustments, is estimated to be less than 12 months
Estimates of the remaining economic production life of the
Claymore and Piper Complex and other related financial
characteristics used:
-- Forward curves for future price of oil and gas
-- Publicly available cost data
-- Future production rates estimated using typical reservoir Decline Curve Analysis ("DCA")
-- Historic oil and gas production figures up to November 2020
(as published by the Oil and Gas Authority)
Revenue net to CPRL's Royalty interest in the year ended 31
December 2020 was US$24,672.
The amount shown above does not include accounts receivable of
approximately US$120,000 which is now, contractually, to be paid to
Union Jack in due course.
The Acquired Interest represents Union Jack's first investment
in the Royalty and the Company has the objective of making further
investments during 2021. A second, material transaction is
currently under negotiation and is at an advanced stage.
Oil & Gas Advisors Limited acted as financial adviser to the
Company in respect of this transaction.
Background on the Claymore and Piper Complex
The Claymore and Piper Complex has produced in excess of 1.8
billion barrels of oil and 262 billion cubic feet of gas to date,
of which approximately 6 million barrels of oil and 2 billion cubic
feet of gas was produced in 2020.
The Operator of the Claymore and Piper Complex is Repsol Sinopec
Resources UK Limited, an oil and gas exploration and production
company that has extensive hydrocarbon interests in the UK North
Sea.
Claymore Complex
The Claymore Complex is located within block 14/19 of the UK
Continental Shelf in the Central North Sea, 161 kilometres north
east of Aberdeen.
The development consists of two fixed, steel bridge-linked
platforms in 110 metres of water.
The complex also includes the Scapa oilfield developed as a
sub-sea tie-back to the Claymore platform, which produced first oil
in 1985. In addition, Claymore provides an up and over
transportation service to Golden Eagle. Hydrocarbons are
transported via a 14 inch oil export pipeline from Golden Eagle and
delivered to the Claymore pipeline.
Piper Complex
Piper was initially authorised for development in 1974 and lies
within block 15/17 of the UK Continental Shelf in the Central North
Sea, 193 kilometres north east of Aberdeen.
The Piper B platform was installed in 1992 and production
commenced in 1993. Piper B's process facilities separate production
from the Piper, Saltire, Chanter and Tweedsmuir reservoirs into
oil, natural gas liquids and dry gas. The platform receives gas for
fuel gas provision from the Frigg gas network when required.
Scapa Field
The Scapa Field is located in UK North Sea Block 14/19 in the
Witch Ground Graben, 112 miles northeast of Aberdeen.
The field was discovered in 1975 by the 14/19-9 well which
tested 32deg API crude from the Scapa Sandstone Member of the Early
Cretaceous Valhall Formation.
Production from the Scapa field is exported through the existing
Claymore and Piper infrastructure.
Royalty Manager
Repsol Sinopec Resources UK Limited, acting in its capacity as
the Operator of the Claymore and Piper Complex, is currently
holding all monies accruing to the holders of the Royalty (the
"Accrued Royalty"), to which individual holders of the Royalty are
entitled in proportion to their respective ownership of the
Royalty. All cash disbursements to the holders of the Royalty,
including disbursements of the Accrued Royalty, are undertaken by a
royalty manager, that awaits a new appointment.
Royalty Presentation
A presentation in respect of the Company's interest in the
Claymore Piper Complex Royalty can be found on the homepage of the
Union Jack website www.unionjackoil.com.
For further information, please contact:
Union Jack Oil plc Via Cassiopeia Services Ltd
David Bramhill
SP Angel Corporate Finance LLP +44 (0)20 3470 0470
Nominated Adviser and Broker
Richard Morrison
Richard Hail
Caroline Rowe
Cassiopeia Services Ltd +44 (0)7949 690 338
Public Relations
Stefania Barbaglio
Novus Communications Ltd +44 (0)20 7448 9839 / Twitter:
@NovusComms
Financial PR
Alan Green / Jacqueline Briscoe
Glossary
Internal Rate of Return The internal rate of return is a financial
or IRR metric used to assess the attractiveness
of a particular investment opportunity.
The IRR for an investment effectively
estimates the rate of return of that
investment after accounting for the initial
investment and all its projected cashflows
and taking into account the time value
of money.
The internal rate of return is also a
discount rate that makes the net present
value ("NPV") of all future cash flows
equal to zero in a discounted cash flow
analysis.
Petroleum Revenue Tax A tax on the profits from oil and gas
or PRT production from the UK Continental Shelf.
Unlike Corporation Tax, which is charged
on the aggregate profit arising from
all oil fields owned by a company, PRT
is charged on each owner's share of the
profits of each individual oil field.
PRT was permanently zero rated in 2016.
---------------------------------------------
Subsea Tieback The subsea tieback is an engineering
solution connecting a well head to an
existing production centre via a pipeline
laying on, or buried beneath, the seafloor.
---------------------------------------------
Yield Yield refers to the earnings generated
and realized on an investment over a
particular period of time and is expressed
as a percentage based on the invested
amount, current market value, or face
value of the security. It includes the
interest earned or dividends received
from holding a particular security.
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END
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