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Union Jack Oil (UJO) has been making very bullish noises about its discovery at West Newton, which it is intimating is more significant that originally anticipated. The discovery was originally touted as a gas reserve but it now seems that there may be oil as well.

Union Jack Oil has a 16.66% stake in the site and reckons that it is now looking at a 45 metre gross oil column. The firm said that it is awaiting further information on the find and exactly how much oil and gas is actually in place and can be pumped.

The West Newton well in question has been drilled down to over 2000 metres.

The other companies that are involved in the project are Rathlin Energy and Reabold Resources. Originally the triumvirate of companies had thought they were looking at a small gas field, but it does now seem as if they have stumbled onto a more lucrative oil reserve.

The significance of the find is not to be underestimated. It could conceivably be one of the biggest onshore hydrocarbon discoveries since the 1970s. This is obviously sparking excitement among investors.

Union Jack Oil shares climb on back of discovery

Union Jack Oil shares had been priced at around 10p going into May, but since then we have seen considerable activity, with the price rising to 31p by the middle of August. Right now investors are holding steady at around the 30-31p mark awaiting further data from the find.

The AIM-listed oil exploration specialist has a number of different projects in the UK already, although management is very bullish on the West Newton find. It covers an area of 4,800 acres, with a licence for 176,000 acres. According to its nomad broker SP Angel, Union Jack Oil believes there to be “significant upside” in the remainder of the acreage. The current results means some of the other exploratory drilling could now find much more than was originally expected.

The business raised a further GBP 2.25 million in late June, which puts it in a stronger position to exploit further finds.

One challenge investors need to bear in mind before buying into Union Jack Oil is that a UK field of this nature will face substantial environmental and development obstacles. As we have also seen with recent fracking and biogas projects, energy companies must navigate a maze of conflicting requirements before bringing a well like this on-stream.

On the upside Union Jack Oil already has access to existing pipeline infrastructure in the immediate area, operated by Centrica and Perenco.

The find has caused SP Angel, the company’s broker, to lift its target price from 44p/share to 55p/share. SP Angel said in a research note that “this could be one of the most significant onshore discoveries made in the UK in years, if not one of the largest ever.”

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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