Jersey Oil & Gas (JOG) outlined in its annual results for the year ended 31 December 2020 that it is delivering on its growth strategy at the Greater Buchan Area project in the North Sea.
The oil and gas firm, which is focused on the UK Continental Shelf region of the North Sea, told investors on Thursday that it has successfully aggregated a significant portfolio of discovered resources in the Greater Buchan Area (“GBA”), together with “significant exploration upside.”
The Group said that over the period, it has assembled ‘an industry leading, multidisciplinary team of specialists’ who have delivered a significant upgrade in both discovered and prospective resources and who have selected the optimum development concept, it said.
In a research note, analysts at research firm Arden Partners said yesterday's statement had re-confirmed JOG’s intention to develop the GBA via a new platform located at the Buchan field, “which further demonstrates the quantity of work that the firm has undertaken on the project, and puts JOG in a position to begin its GBA farm down process in the coming weeks," it noted.
Commenting on the development at the GBA, Andrew Benitz, Chief Executive of Jersey Oil & Gas, told investors, “The GBA project will be a major investment for the UK, create many jobs and ultimately produce a vital domestically sourced and low carbon supply of energy.”
The company said it continues to plan for first oil from the GBA development to be in late 2025, with many market commentators anticipating long term oil prices of US$60 and above.
‘Such levels are substantially above our current estimates for the lifecycle costs for our GBA project, being approximately in US$30 per barrel,’ the company highlighted to investors.
First oil from the GBA development would then be followed by development of J2 and Verbier East via tieback to Buchan as Phase 2, and then development of Verbier West as Phase 3.
While there are ‘substantial costs’ to be incurred in taking the GBA development through to first oil, which will require additional funding, JOG said it is confident that the project, ‘by virtue of its size, location and low carbon, electrically powered credentials,’ will be of great interest.
JOG formally launched a farm out process in 1Q21 in addition to raising around £16.6m (gross) of new equity capital, which will enable it to maintain its plans for first oil in 2025 and provide it with financial flexibility as we negotiate with prospective farm-in partners, it said.
Shares in Jersey Oil & Gas have nearly doubled in value since the beginning of November 2021. The stock was trading 0.48% higher this morning at 156.75 after yesterday’s results.
In its research note, analysts at Arden Partners noted how JOG had included the option for platform electrification in its development plan. This process involves taking power from the shore via a subsea cable as opposed to generating it on the platform using gas turbines.
As a result of using electrification, this is expected to reduce GBA development scope 1 carbon emissions from 13kg/boe to <1kg/boe, for an overall £80m increase in CAPEX.
Analysts at Arden said they view this as “particularly important” going into the farm out process, as it means JOG can offer potential partners a low emissions project option without materially compromising economics. They added that this element of the project should help increase the GBA’s attractiveness to industry and expand the potential bidder group.
Looking ahead, JOG is expecting to submit its formal Concept Select Report summary to the OGA before the end of July 2021, expecting to enter the Front End Engineering and Design (FEED) stage of the project by 3Q21, and then Final Investment Decision (FID) in 2H22.
As a result of recovering oil prices from the lows witnessed during 2020, JOG expects a significant supply crunch from global under investment in upstream projects, which can be expected to lead to further oil price increases favourably timed for its development, it said.
As at 31 December 2020, total cash stood at £5.1m (FC £5.0m). Post period-end, in April 2021, the company raised £16.6 million gross via a placing and open offer, which the group said will strengthen its balance sheet as well as its negotiating hand for its farm-out process.
In a separate research note released on Thursday, analysts at UK broker, finnCap highlighted that “2020 was the year that JOG’s GBA Development really started to take shape.”
“Electrification should make the project more appealing to potential partners, who can boost their growth potential while reducing their average carbon intensity. Crucially, this also comes at a time of resurgent oil prices and deal activity in the North Sea,” the research firm noted.
Following the release of the firm's FY20 results, finnCap analysts said its 542p/sh risked-NAV and price target remains unchanged. This assumes a US$55/bbl long-term brent oil price and just a 33% commercial CoS for the GBA development. In addition, analysts have also given minimal value to JOG’s significant near-field exploration potential at 4.9p/sh.
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