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Jersey drilling disappoints

The North Sea-focused upstream oil and gas company has announced disappointing results from an appraisal well, but there is still commercial value in its flagship Verbier discovery, not to mention potential from the nearby Cortina prospect
April 3, 2019

 Jersey Oil & Gas (JOG:98p), a UK North Sea-focused upstream oil and gas company that owns an 18 per cent interest in the P2170 licence (Blocks 20/5b & 21/1d), Outer Moray Firth, has announced disappointing results from its eagerly awaited appraisal drilling programme on its flagship Verbier discovery in Block 20/5b.

Analysts at WH Ireland note that the stratigraphic geology of the reservoir has proved more complicated than hoped for and the contingent reserve estimate of the discovery is likely to be revised towards the lower end of the initial resource estimate of between 25m and 130m barrels of oil equivalent (boe). The implication being that although Jersey’s management believes Verbier is commercially viable at 25m boe, it’s unlikely to justify a new development by itself given that analysts at house broker Arden Partners believe a minimum resource of 60m would be required.

Bearing this in mind, it seems likely that results (expected in the second quarter of 2019) of new 3D seismic data (derived from the 2018 PGS geostreamer survey) which will be integrated with the Verbier appraisal well result will be far more relevant for Jersey’s nearby Cortina prospect on the P2170 licence (which has a minimum resource of 39m boe) than the appraisal drilling result from Verbier given that the presence of a working petroleum system has already been proved by the successful Verbier discovery well (20/05b-14 well). The upshot being that the joint venture could be in a position later this year to confirm a 2020 work programme. Potential options include: drilling an exploration well on the Cortina prospect with a view to combining it with Verbier; drilling a new appraisal well at Verbier to explore a new prospective horizon that has been identified below Verbier to create a stacked prospect; or Verbier could be tied back to existing production infrastructure.

Arden Partners estimates Jersey has current net cash of £12.5m (57p a share), and places a risked value of $37m (125p a share) on Verbier and $25m on Cortina (85p), suggesting Jersey’s shares are trading on less than half risked net asset value after its share price was marked down more than 50 per cent on the Verbier drilling news. In the circumstances, I would recommend awaiting further news on Jersey’s development plans. All is not lost. Hold.