Union Jack Oil (UJO ), a UK-focused onshore conventional explorer, has agreed to provide Europa Oil & Gas (EOG ) with a £1,000,000 loan.
The loan term is 18 months, and the full amount is repayable at any point before then. The interest rate is 11%, accruing daily, payable quarterly.
The loan will be secured against Europa's 10% interest in PEDL180 an PEDL182, which contain Union Jack's flagship Wressle asset.
Union Jack Oil's board believes the loan facility will provide an attractive return to the company on cash funds deployed with appropriate security.
David Bramhill, Executive Chairman of Union jack, commented: "Our working capital position remains robust and continues to grow with cash balances, receivables and liquid investments standing at approximately £10,500,000 as at 6 September 2022, with steady improvement expected by the end of this year, given current oil prices.
"This strong position, combined with being debt free, allows us to confirm we are covered for G&A, OPEX and CAPEX costs that are contracted or planned for at least the next 12 months, including the cost of any development and drilling activities that are currently under consideration during 2022/2023 at the Wressle, West Newton, Keddington and Biscathorpe projects.
"The mandate of the Board is to ensure that the Company's capital and investments generate an attractive commercial return for shareholders. That also applies to deploying any surplus cash balances currently on deposit to ensure they work as hard as possible and attract optimum interest rates to generate additional revenues."
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Today's news follows Union Jack's H1 2022 report, released on Wednesday, which detailed the company's strong financials. Union Jack recorded £2.03m of maiden profit, £4.38m of revenues, no debt, and a £10.5m cash position at the end of H1. Steady revenues from Wressle, now averaging 300 bopd with peaks of 1000 bopd, have resulted in that £10.5m cash balance, which the company now feels confident to lend out to its project partner.
Still, Union Jack's positive cash flow and remaining cash position will comfortably cover all of its capex expenses for at least another 12 months.
The terms of the loan are attractive to Union Jack shareholders as the 11% interest rate is secured against the company's own flagship asset. As a result, shares jumped over 5% in London this morning, reaffirming investors' confidence in Union Jack's trajectory.
Shares are currently up 155% YTD despite challenging economic and market conditions, reflecting the success of Wressle as well as progress across Union Jack's entire portfolio, with Newton, Keddington, and Biscathorpe also under active development.
Wressle is currently among the most productive conventional-producing UK onshore oilfields, set to become second only to Perenco's Wytch Farm.
To date, Wressle has produced over 225,000 barrels of oil with zero water cut, with instantaneous rates of over 1,000 bopd achieved. Union Jack is actively developing the site, approved for production through 2039, and recently increased its stake in Wressle to 40%.
Union Jack has also been given the nod by the High Court for a Capital Reduction, creating additional distributable reserves of £21.5m, that may be used to pay a dividend and/or activate a share buyback programme.
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