Analyst Brendan Long at brokers WH Ireland was impressed with the news that NEO Energy has farmed-in to a 50% stake in the Jersey Oil & Gas (LON:JOG) Greater Buchan Area interest.
So much so that he has now assessed that the £87m group’s shares, currently trading up at 247p, have a ‘fair value’ estimate of 684p a share.
On the GBA news, the group’s shares more than doubled in price in the first week of this month, from 153p to 332p at one stage.
They closed last night at 241p after easing back on profit-taking but could now look ready to move even higher again.
The ‘game changer’
For JOG the ‘farm-out’ to NEO could unlock the development solution and monetisation resources in excess of 100m barrels of oil equivalent.
Long has estimated that with first oil from Buchan expected in 2026, the group can be expected to soon be gushing cash.
He reckons that JOG will generate $96.9m in post-tax cash flow from operations in the first 18 months from first oil at Buchan – it is a ‘game changer’ that should set the group on its second phase of its growth and value -accretion journey.
The Group’s interests
Jersey Oil & Gas is a UK exploration and production company which is focused on building an upstream oil and gas business in the North Sea.
It holds a significant acreage position within the Central North Sea referred to as the Greater Buchan Area, which includes operatorship and 100% working interests in blocks that contain the Buchan oil field and J2 oil discovery and an 100% working interest in the P2170 Licence Blocks 20/5b & 21/1d, that contain the Verbier oil discovery and other exploration prospects.
NEO Energy
NEO is a full-cycle energy company.
It is a major UK North Sea operator producing approximately 90,000 barrels of oil equivalent per day and is backed by HitecVision, a leading private equity investor focused on Europe’s offshore energy industry with $8bn of assets under management.
HitecVision is headquartered in Stavanger, Norway, with other offices in Oslo, London and Milan.
Since 1994, the HitecVision team have invested in, acquired or established more than 200 companies, including more than ten E&P companies, such as Vår Energi, the second-largest independent E&P company in Norway.
JOG’s CEO Andrew Benitz recently stated that:
“We are delighted to announce this transaction with NEO Energy, a well-funded industry heavyweight and the fifth largest producer in the UKCS.
The farm-out marks a major value creation moment for JOG, a significant de-risking of the GBA development programme, from both an operational and funding perspective, and provides the springboard from which to grow the long-term value of the business.
We are looking forward to working collaboratively with NEO Energy to select the optimal development solution for the GBA and taking the project through to sanction and on into future production.”
The NEO deal
Jersey is divesting 50% of the Greater Buchan Area to NEO Energy.
In return, Jersey will receive a carry for its 50% share of the estimated $25m cost to take the Buchan field through to FDP approval, it will receive $2m in cash on completion of the transaction then $9.4m in cash upon finalisation of the Greater Buchan Area development solution, another $12.5m in cash on FDP approval, $5m in cash on each FDP approval in respect of the J2 and Verbier discoveries and finally it will achieve a 12.5% carry of the Buchan field development costs.
Analyst Opinion
At finnCap their analyst Jonathan Wright considers that this transaction represents a strong validation for the GBA project from a significant North Sea operator.
He reckons that the ‘farm-out’ alone is worth over 400p a share to JOG.
Under his conservative assumptions on the group’s prospects, he notes that there is a significant upside potential for its shares. He has stated a risked valuation of 660p a share.
Analyst Brendan Long at WH Ireland believes that the timing of this deal is excellent for all parties, heading into a prolonged period of robust oil prices.
He considers that this development is by far the most important achievement in the company’s history and has completely reset the group’s development.
Analyst Daniel Slater at Zeus Capital following this deal reckons that he has a very positive outlook on the group’s prospects and upon his company’s total unrisked net asset value has a massive 952p price objective.
Conclusion – undervalued at this price
Now at just 247p this group’s shares, which touched 340p last October before halving in price at the end of last month, are now showing some real upside potential.