Jersey Oil and Gas (LSE:JOG), a FTSE AIM All-Share stock, has had a tumultuous time of late. The independent Jersey-based upstream oil and gas company is looking for a farm-out deal to develop the Greater Buchan Area. News about an investment deal was due in the Autumn with technical due diligence expected to complete in October. Investors will be keeping a keen eye on updates from Jersey Oil and Gas and wondering if delays are a cause for concern.
Andrew Benitz, CEO of Jersey Oil and Gas, stated in September that “great progress is being made with the farm-out process” and that “advanced and commercial discussions are ongoing with serious, well-funded counterparties”.
Since the interim results announcement, however, the share price has fallen considerably as time has passed with no deal. The news in November that recent windfall tax rises will last longer and be higher than expected, at 35%, could materially dent potential profits.
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The calm before the storm?
At the end of November, Benitz looked to calm nerves by referring to the farm-out situation explicitly in a statement about an extension to the Verbier licence. Benitz made clear a deal is expected soon, stating that “if not by the end of the year then certainly in Q1 2023”.
Jersey Oil and Gas also sought to settle fears further by adding that the retention of the investment allowance as part of the UK’s Energy Profits Levy “is welcome”.
The share price has rebounded slightly on the back of the reassuring statement that news could be on the horizon at any moment. What, however, would a farm-out deal actually mean for Jersey Oil and Gas? The funding would allow production to restart from the Buchan field and development of the Greater Buchan Area that holds 172 barrels of discovered and recoverable oil. This would be welcome news for the UK government at a time when energy security is more vital than ever.
Risk vs reward
There are many potential unknowns here, such as what a final agreement could look like, plus the fact the oil price has slumped and this could deter future investment. The French super major Total has put off investment in the North Sea, rattled by changing circumstances.
Yet oil and gas demand is likely to recover, according to the International Energy Agency, with a forecast of a 2% rise taking oil to a record high of 1,016 million barrels per day. In addition, at least two analysts are tipping this share to go above 700p on investment news. With a strong cash position of £8.7m and no debt, I think this is a stock that could have strong potential at 250p per share as I write.
Whilst fledgling companies may not be for some, for me Jersey Oil and Gas makes an interesting addition to my portfolio as I believe it could see substantial growth in the long term.
