3 September 2019
Jersey Oil and Gas* (JOG LN) – Arden note released
Buy, Current Price: 239p Target Price: 550p
Key Points: JOG recently announced the award of substantial new assets in the UK North Sea. This note maps out the newsflow we would expect this to generate as the company moves towards development, while also laying out a series of valuation scenarios. This all well supports our Buy recommendation and 550p price target.
Significant asset additions. JOG recently announced 100% award of the Buchan oil field and Buchan Andrew, J2 and Glenn oil discoveries. These contain gross mean contingent resources of 119mmboe – a huge uplift on JOG’s existing Verbier 5mmboe net 2C position.
Buchan is development ready. Buchan is an existing field with all the required data to be redeveloped: JOG is now beginning to work on a new field development plan.
Share price not yet fully reflecting new assets. JOG shares have already made significant gains. Our modelling indicates that they are still substantially undervaluing the new asset position, however.
Way forward to help demonstrate veracity of new asset value. There are a number of waypoints over the coming months and years that should help demonstrate JOG’s asset value, including development plan submission (mid-2021), potential farm out (50% option granted to Equinor expires in Q4 2019; numerous other potential partners otherwise), completion of funding and FID, and first oil (targeted for 2024). We could also see further P2170 drilling in 2020.
Our modelling shows a wide range of potential valuations. This note includes a number of modelled scenarios for JOG’s assets, and we also look at UK North Sea transaction multiples. Our base case returns a JOG risked NAV of 597p, but our overall range runs from 292p to 2,664p.
Buy recommendation, 550p target. Going forward we expect the outcome of the Equinor option, new JOG CPRs, confirmation of the 2020 P2170 work programme, potential 2020 drilling and periodic Buchan development planning updates. This, alongside the underlying asset value, supports our Buy recommendation and 550p target.