Today’s Oil & Gas Update – Union Jack Oil and more…

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Non-Independent Research; Marketing & Sales Commentary – MiFID II exempt information – see disclaimer below


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Market Update: Tuesday 20 April 2021

Sound Energy* (AIM:SOU): Initiation of Coverage – Transforming Morocco’s energy mix

Union Jack Oil* (AIM:UJO): Well testing operations is expected to commence in May 2021

PetroTal (AIM:PTAL): Further hedging in place


Energy Prices         

Brent Oil US$67.7/bbl vs US$66.6/bbl yesterday

WTI Oil US$64.0/bbl vs US$63.0/bbl yesterday

Natural Gas US$2.75/mmbtu vs US$2.71/mmbtu yesterday


Oil Price News 

SP Angel’s Oil Market outlook following March 2021 OPEC+ meeting:

Please see SP Angel’s Oil Market outlook for 2021:

  • The OPEC+ alliance will gradually ease the collective production cuts between May and July, as the ministers agreed earlier this month
  • The decision was taken by OPEC+, and the gradual reversal of part of the cuts will take place between May and July
  • Russia, the key partner of OPEC in the OPEC+ group, decided together with its allies led by Saudi Arabia to ease the collective production cuts by over 1MMbopd over the next three months to July.
  • In early April, OPEC+ decided to gradually increase collective oil production by 350,000bopd in each of May and June and by more than 400,000bopd in July
  • Additionally, Saudi Arabia will also gradually ease its extra unilateral cut of 1MMbopd over the course of the next few months, beginning with monthly production increases of 250,000bopd in each of May and June
  • Before the OPEC+ meeting that agreed on these parameters, the global oil market had improved since the March meeting
  • Last week, OPEC raised its global demand growth estimate, and so did the International Energy Agency (IEA), giving the market hope that demand would rebound strongly later this year and offset the weakness seen in the first half due to surging cases and lockdowns in Europe and major oil importer India
  • The IEA now sees oil demand rising by 5.7MMbopd in 2021 compared to 2020, revising up its estimate by 230,000bopd “to take account of better economic forecasts and robust prompt indicators”


Gas Price News 

  • The natural gas market has hit its highest level since 12 March on the back of increased weather-driven demand and strong liquefied natural gas (LNG) volumes
  • Perhaps putting a lid on the rally was a 2% drop in Natural Gas Intelligence’s (NGI) Spot Gas National Average
  • The rise follows the latest inventory report of an injection of 61Bcf of natural gas into storage
  • That was below median estimates found by major polls and the year-earlier injection of 68Bcf
  • The injection was well under our estimate of 72Bcf, and on the low end of the range of all market estimates
  • This is a strong number, confirming the tightening of balances we have been seeing over the last few weeks


Company News

Sound Energy* (AIM:SOU): Initiation of Coverage – Transforming Morocco’s energy mix

Share Price: 2.2p, Market Cap: £29m

BUY – TP: 6.5p


  • Under a new leadership team, Sound Energy has a new focus with regards to the commercialisation of its flagship Tendrara Production Concession.
  • With the largest onshore acreage position in Morocco which includes significant discoveries, Sound will now embark upon an aggressive development programme which will see a transformational near-term step change in the Company’s financial outlook centred around the Energy Transition.
  • We initiate coverage with a BUY rating and 6.5p/share TP.

*SP Angel acts as Corporate Broker to Sound Energy


Union Jack Oil* (AIM:UJO): Well testing operations is expected to commence in May 2021

Share Price: 36p, Market Cap: £38m


  • Union Jack has outlined the Company’s latest operations update and forward well testing programme in respect of the West Newton B-1Z (WNB-1Z) conventional appraisal well, operated by Rathlin Energy.
  • The Company holds a 16.665% economic interest in PEDL183, encompassing an area of 176,000 acres and located within the Western Sector of the Southern Permian Basin, onshore UK, North of the river Humber. 
  • Following successful drilling campaigns, PEDL183 contains the WNA-1, WNA-2 and WNB-1Z hydrocarbon discoveries.
  • Union Jack has confirmed that a Cased Hole Logging Programme (CHLP) and Vertical Seismic Profiling (VSP) operations on the WNB-1Z well have been completed.
  • Results from the CHLP confirmed the presence of a good cement bond of the production liner and well bore integrity.
  • Data from the VSP is currently in Romania being processed, however management has confirmed that initial indications are that the data is of good quality.
  • The VSP data will be used to refine the 3D seismic interpretation, primarily to be used in volumetric calculations towards reserve/resource figures for the West Newton field and for the identification of future well locations.
  • The next phase of operations will be conducted using a service rig and will be comprised of perforation and stimulation of the Kirkham Abbey formation and subsequent flow testing of the well.
  • This phase of well testing operations is expected to commence in May 2021 and take approximately four weeks to complete.
  • Following completion of operations on WNB-1Z, the testing of the WNA-2 well will commence.
  • Various thin section images taken from core plugs obtained from the West Newton B-1Z well show porosity throughout the core with the better samples exhibiting porosities of between 12% and 15%.

Our take: Following detailed analysis of the recent drilling campaign, investors now have clear line of sight on the much-anticipated Extended Well Test’s (EWT’s) on both the WNB1Z and WNA-2 appraisal wells. With regards to an updated CPR, we would also not be surprised to see a material in uplift volumetrics given the highly successful drilling reports, notwithstanding the thicker structure and contiguous nature of the Kirkham Abbey formation between the A and B sites, but also the elevated mudgas concentrations observed. In addition, the Joint Venture is considering a 3D seismic programme over other structures which have been highlighted within the licence area especially with the Ellerby and Spring Hill Prospects being on-trend with West Newton. As such, the short to medium term will focus on maturing this play further to commercialisation, in addition to proving up analogue fields across the project area. We highlight that Union Jack remains in a well-funded, debt free position, with Wressle (UJO 40% working interest) now onstream. Indeed, the acquisitions of material stakes in its core assets (Wressle, Biscathorpe), underpinned by continued success with the drill-bit suggests that Union Jack has the potential to transition from a junior E&P Company into a self-sustaining mid-tier hydrocarbon producer. On this basis, we reiterate our STRONG BUY rating and 176p/share TP.

*SP Angel acts as Nominated Adviser and Broker to Union Jack Oil


PetroTal (AIM:PTAL): Further hedging in place

Share Price: 15.3p, Market Cap: £124m

  • A comprehensive update from PTAL today confirms that the remaining 1.4MMbbo in the North Peruvian Pipeline (ONP) has now been hedged by Petroperu, thereby securing future total true-up revenue payments of c.USD$31m for the original 1.8MMbbls.
  • At the corporate level, over 1.2MMbbls in total are now hedged, representing 32% of forecast oil production for April 2021 to December 2021. 
  • PTAL completed a second layer of its oil hedging program for 2021.  
  • Approximately 338,000bbls have been hedged (representing 9% of forecast oil production covering August 2021 to December 2021) in a Put structure with a US$60/bbl strike. 
  • In addition, 284,000bbls have been hedged (representing 8% of forecast oil production covering May 2021 to July 2021), in a synthetic Put structure with a swap price of US$62.15/bbl and a call strike of US$66.00/bbl.
  • To address the recent volatility of the Peruvian Sol, the Company has maintained low cash flow exposure to the currency, with Peruvian Sol accounting for an estimated 8% of operating costs, 60% of Peruvian G&A costs, and 8% of capital expenditures.
  • The Company has also confirmed that its FY20 results will be announced on 22 April 2021.

Our take: PTAL continues to demonstrate a prudent approach to capital discipline through a robust hedging programme and a reliance on the US Dollar given the Peruvian Sol weakness. It is likely that the ongoing elections will remain a theme of uncertainty until June’s vote, already impacting the wider economy in Peru.  Nevertheless, on a corporate level, the Company’s recently replenished balance sheet has led to a return to development activity at the Bretana oil field, with the next well expected to commence imminently. The recent reopening of the Bretana oil field operations will invariably lead to a step change in the Company’s cash flow position notwithstanding a much stronger oil price globally. Indeed, FY21 EBITDA of US$90m is likely to be the bearish case given the current spot and futures market for Brent crude, and we therefore see the Company’s current share price as an attractive entry point.


Research – Oil & Gas

Sam Wahab – 0203 470 0473 / 0784 385 5037

[email protected]



Richard Parlons – 020 3470 0472

Abigail Wayne – 020 3470 0534

Rob Rees – 020 3470 0535 

Grant Barker – 020 3470 0471  


SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London



+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.


Sources of commodity prices

Oil Brent, WTI – ICE

Natural Gas – NYMEX



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Recommendations are based on a 12-month time horizon as follows:


Buy – Expected return >15%

Hold – Expected return range -15% to +15%

Sell – Expected return < 15%

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