How is it doing

UOG has bought Rockhopper Exploration’s Egyptian asset portfolio, which will deliver United’s first production operation along with further development and exploration upside.

It constitutes a reverse takeover and United is paying US$16mln to acquire the Egyptian assets with the deal partially supported by a financing deal with BP, which will provide US$8mln, along with a share placing to investors and a US$5mln issue of equity to Rockhopper.

Upon completion, the Abu Sennan concession is yielding around 1,700 barrels oil equivalent per day net to United – which is nearly double the rate at the time that the deal was agreed.

The underlying operation producing around 7,900 boepd – thanks to the recent addition of a new well (ASH-2).

ASH-2 alone, in December, achieved a rate of 7,027 boepd during testing and it has been onstream, producing more than 3,000 boepd since the start of January. Another new well, El Salmiya-5, was spudded in early February and it is targeting multiple reservoirs.

El Salmiya-5 is one of four fully funded well that are being drilled within the Abu Sennan concession this year.

In Jamaica, the Walton Morant/Colibri prospect is estimated to contain 229mln barrels of prospective resources.

Tullow extended ‘drill or drop’ deadline to July as joint farm-out talks progress with ‘interested parties’. A new partner would support funding for the first well, which was originally pencilled in 2020 (now presumably subject to any deal timeline).

Selva in Italy was originally scheduled to begin production in 2020 at a targeted rate of 150,000 cubic metres of gas per day, which it would deliver significant cash flow to United says the company.

Awarded four blocks in the Central North Sea in 31st licensing round that includes the Zeta prospect, which United estimates could contain over 90 million barrels of in-place oil.

UOG recently agreed the sale of the Crown Discovery assets in the North Sea for US$5mln.

What the boss says: Brian Larkin, chief executive

“Operating costs in Egypt are cheap, the drilling costs are cheap and the exploration upside is low-risk.

“So it’s a perfect fit for our business model at this stage of our growth.”

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Responding to coronavirus impacts

In early April, United highlighted strong production growth in Egypt whilst detailing its response to “considerable challenges” amidst the coronavirus (COVID-19) pandemic and weak crude prices.

Production in Egypt measures around 8,400 barrels oil equivalent per day (boedp) gross, the company said, which equates to 1,850 boepd net.

Significantly, the volumes are materially higher than they were when United agreed to acquire the Abu Sennan assets from Rockhopper Exploration PLC (LON:RKH). United noted that Abu Sennan is positioned as a low-cost operation, at around US$6.5 per barrel, adding it also provides “solid” margins even with the currently low prices.

United said it has taken proactive measures to reduce near-term capital expenditure (capex) as a result of the current crisis. It said deferrals in Italy haved move ‘first gas’ into the first half of 2021, but, improves cash flow in the nearer term.

Similarly, United noted the deferral of two of four previously planned wells in Egypt which will significantly reduce expected capex for 2020. Further optimisation of capex and opex continues to be reviewed, the company added.

It is also seeking to divest non-core assets in the UK’s Wessex basin, and has decided against exercising its farm-in option in Benin.

The company told investors that the decisions it is taking are expected to minimise the impact of oil-price uncertainty and COVID-19, and help safeguard the company during this challenging time.


What brokers say

House brokers Cenkos and Optiva have both published notes to investors in the first months of 2020,, alongside the completion of the Egypt deal.

Optiva has a per share valuation of 4.3p for the acquired Egypt business alone, compared to a market price of 2.67p – whereas the total sum-of-parts valuation rises to 10.4p once other production and more prospective exploration assets are factored in.

Gray said the broker’s valuation “demonstrates that the company’s current market capitalisation is well covered by our valuation of Egypt alone.

“With cash flow expected to be augmented from initial cash production from the Selva field in Italy later in 2020 and further progress anticipated with regards to United’s earlier stage assets, we believe that the company comfortably justifies our 10.4p valuation for the wider portfolio.”

Cenkos meanwhile highlighted “many near term value drivers” as it initiated coverage of the firm with an 8.9p target price.

Cenkos said the company had “several upcoming near-term milestones which have the potential to deliver significant shareholder value”, including the continued interpretation of data from the ASH-2 well in Egypt, a drill or drop decision on the Walton- Morant licence in Jamaica, containing the giant 229mln barrels Colibri prospect and the development of the Selva gas field in Italy, due onstream in the fourth quarter of 2020.

“We believe the current share price of…offers no value to United’s potentially transformational portfolio of value accretive opportunities”, Cenkos’ analysts said, adding that in their view the stock will be re-rated on a “regular basis as it looks to deliver on its full cycle asset portfolio”.