The additional stake takes Union Jack’s total interest in the licences to 27.5%.
The onshore UK explorer is paying £1.04mln for the interest, although this is only due once commercial oil production is established at Wressle.
Commercial production at Wressle to be “transformative” for UJO
“The acquisition has an immediate positive impact on Union Jack by instantly increasing its reserves and resources base by 83% to in excess of 855,000 barrels of oil equivalent,” said executive chairman David Bramhill.
“The justification for Union Jack acquiring an additional interest in Wressle is the transformative economic impact to the company, as we believe that when commercial oil production at Wressle is established, it would provide Union Jack with cash flows of approximately US$4 million per annum in the current oil price environment.”
He added: “After taking operating costs into consideration, that are estimated to be below US$15 per barrel, such net revenues would propel Union Jack into a material revenue generating oil and gas production company.”
Union Jack remains in a “robust financial position”: it has cash reserves of US£2mln and is fully funded for its existing drill commitments in 2018.
In a note to clients, analysts at SPAngel said: “By making the consideration liable on first oil the wily management team at UJO has structured a transaction that not only limits exposure to development risk but also allows for the use of alternative financing to fund it, such as a working capital line, potentially eliminating the need for equity.”
They added: As a result of this transaction, but before the details of the NPI are known, our valuation rises to US$62.7mm (0.76p), which is net of 2.5% NPI, although we estimate that the NPI to UJO will be at least half this, potentially less.”
In morning trading, Union Jack Oil shares were up 9.5% at 0.12p.
-- Adds analyst comment, updates share price --