Thoughts

Jamaica is a wild cat prospect, definitely high risk but that’s what will take UOG to the next level. I have some notes on the risks and thoughts on what might happen.

20% Chance of Success

I personally think there is higher than 20% chance of success in Jamaica but UOG has a 20% estimate

Final processing of the 2,250km2 3D seismic data that was acquired in 2018 was completed in 2019. A CPR completed on this new data increased the gross unrisked mean-case recoverable Prospective Resources to 229 MMstb, and improved the chance of success to 20%

source: https://www.uogplc.com/wp-content/uploads/2020/05/UOG-Plc-Group-Financial-Statements-2019.pdf

Input from others

Oil analysts say that 100 per cent of Jamaica’s estimated oil and gas reserves are easily recoverable.

source: https://www.oilandgasvisionjobs.com/news-item/norris-mcdonald-tullow-and-jamaica-why-the-silence-over-the-big-oil-and-gas-find

Tullow also outlined that there has been oil or gas shows in 10 of the 11 onshore and offshore wells drilled in Jamaica to date.

source: http://jamaica-gleaner.com/article/business/20200527/united-wants-continue-oil-project-jamaica

Risks

No farm-in partners

“The PCJ can advise that we have been informed by Tullow and United Oil and Gas, that the farm-down process (equity reduction) has been unsuccessful so far; however, the companies have indicated that they are still looking for partners,” the agency told the Financial Gleaner.

Tullow giving up

“Markets will be aware that the licence operator, Tullow Oil plc, has written down the value of the Walton-Morant licence in their most recent preliminary results schedule,” stated United in its latest filings.

source: http://jamaica-gleaner.com/article/business/20200527/united-wants-continue-oil-project-jamaica

Negotiations with Jamaican government

However, due to the uncertainty in respect of the current exploration phase there is an indication of possible future impairment should the extension of the exploration period not be granted.

source: https://www.uogplc.com/wp-content/uploads/2020/05/UOG-Plc-Group-Financial-Statements-2019.pdf

Options to Proceed

In order to proceed with Jamaica, UOG needs to be diligent on how they should negotiate with the Jamaican government and how they can finance this. I have some speculations on what UOG will do.

Option 1: UOG negotiates with Jamaican government to take over 100% of Walton-Morant licence

This means UOG will take over all of Walton-Morant licence, start drilling while seeking for farm-in partners. In the mean time, UOG can opt to pay the Jamaican government over X years and/or pay when UOG finds a farm-in partner.

Option 2: UOG negotiates with Jamaican government for an extension to drill until a farm in partner is found

Straight forward enough, but this means everything will continue to be delayed.

Option 3: UOG obtains a loan or raise to pursue Walton-Morant licence

This is very similar to option 1 except this means UOG will have to pay a hefty interest for loans or share dilution for raise.

Option 4: Give up Walton-Morant licence

This is the worst case scenario which Jamaican government will not negotiate any further and UOG doesn’t have the money to drill. This means UOG have to write off any investments it spent on Jamaica.

Jamaica and Egypt – that’s all I care about, rest are just icing.

UOG is will be cashed up for any oil price instability and crisis

• Cashflow from Egypt: net ~$6.9M for 2020
• Crown divestment – net ~$2.85M for 2020

Egypt

I’m assuming UOG can recover all 30% of recovery oil because they have a large tax pool. All calculations are in USD.

• Production: 1850 bopd
• OPEX: $6.50
• Brent Discount: 5%
• Brent Price: $32
• Annual profit: $6957028.16
• Daily Revenue: $56240.0
• Annual Revenue: $20527600.0

I used a python script to do my calculation and here is my formula, do let me know if my formula is flawed:

daily_profit = (bopd * ((brent_price – current_opex) * (1 – brent_discount))) * 0.3 + 0.7 * 0.179* (bopd * (brent_price – current_opex) * ( 1 – brent_discount) )

Egypt PSC Terms

Caveats

• bonus payments required on different tiers of production level

From AIM Admission document

Cost Recovery and Production Sharing
“The Contractors will recover quarterly all costs in respect of exploration, development and operation
out of 30 per cent. of all petroleum produced within the concession area. To the extent that the value
of such cost recovery petroleum exceeds the actual recoverable costs, the value of the excess cost
recovery petroleum will be divided between EGPC and the Contractors in accordance with the
percentages of production sharing as set out below.
The remaining 70 per cent. of the petroleum will be divided between EGPC and the Contractors as
follows:
EGPC’s share Contractors’ share
Crude Oil 82.1% 17.9%
Gas and LPG 82.1% 17.9%
With respect to the Contractors’ share of the crude oil produced, priority will be given to meet the
requirement of the Egyptian market for which EGPC has a preferential right to purchase. With respect
to the gas and liquefied petroleum gas produced, priority will be given to meet the requirement of
the local market as determined by EGPC. Where EGPC or EGAS is the buyer of the gas sold to the
local markets, the sale will be by virtue of a long term gas sales agreement to be entered into between
EGPC and the Contractors (as sellers) and EGPC or EGAS (as buyer).
Bonus Payment
The Abu Sennan Concession provides for certain bonus payments payable to EGPC by the
Contractors such as upon approval of each Development Lease and by the relevant Contractor in
the event of assignment of its rights and obligations under the Abu Sennan Concession (see below).
In addition, the Contractors are obliged to make certain production bonus payments to EGPC upon
production reaching certain agreed thresholds.“

source: https://www.uogplc.com/wp-content/uploads/2019/12/The-Company%E2%80%99s-Re-Admission-Document.pdf

Crown Divestment

“Under the terms of the Crown SPA, and subject to FDP approval, United expects a further $2.85m of net payments during 2020 from the sale of this asset.”

source: https://polaris.brighterir.com/public/united_oil_and_gas/news/rns/story/xqjey7w

Jamaica

“United has indicated to the Jamaican authorities that it wishes to explore options for continuing to progress what United believe to be a transformative licence.  Discussions have been initiated with the Government, and we will update the market in due course.”

source: https://polaris.brighterir.com/public/united_oil_and_gas/news/rns/story/xqjey7w

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