Union Jack Oil (AIM: UJO) has just fired up the drilling rigs of investor interest with a significant move into the heart of Oklahoma’s oil country. Their latest RNS announces a farm-in agreement securing a hefty 60% working interest in the intriguing Sark drilling project. Let’s unpack why this is more than just another acreage acquisition and what it signals for Union Jack’s transatlantic ambitions.
The Deal: Paying to Play for Prime Position
Union Jack isn’t dipping a cautious toe; they’re diving in. The agreement with Reach Oil and Gas Inc sees UJO acquiring that 60% stake in the planned Sark well. Crucially, the structure is a “paying” arrangement: Union Jack will shoulder 80% of the costs to earn its 60% working interest, including back costs of approximately $236,800. The total net cost to UJO for drilling, completion, and development is estimated at a relatively modest circa $1.1 million.
What They’re Drilling For: Sark’s Geological Allure
Sark isn’t a shot in the dark. This is an untested structure boasting compelling characteristics backed by 3D seismic data:
- Promising Structure: Targeting a large dip and fault-closed structure covering 156 acres with 40 feet of relief.
- Primary Targets: The well will drill to an estimated Total Depth of 5,500 feet, primarily aiming for the prolific Hunton and 2nd Wilcox formations – known producers in the region.
- Multiple Shots on Goal: Significant secondary targets are also present, including the Prue Sands, Red Fork, and Base Pennsylvanian Sands, all productive nearby.
- Proven Neighbourhood: The site sits adjacent to an oilfield that has already yielded approximately 1.6 million barrels from the very same Hunton and 2nd Wilcox sands they’re targeting.
- Upside Potential: Further closure exists at the deeper Arbuckle level, offering potential upside estimated at a further 1.5 million barrels gross.
The Prize: Numbers That Turn Heads
The estimated resource potential and economics are what transform Sark from interesting to potentially material for Union Jack:
- Gross Recoverable Resources: Estimated at a substantial 1.44 million barrels of oil for the primary targets.
- Success Case NPV (10%): A highly attractive estimated net present value (using a 10% discount rate) of circa $10.9 million net to UJO, based on a conservative oil price of $65 per barrel. That’s a potential ten-bagger return on their $1.1m net investment.
- Chance of Success (COS): Rated at a robust 65% for finding movable hydrocarbons in this multi-target structure – significantly higher than many exploration plays.
Strategy & Context: Building the American Dream
Executive Chairman David Bramhill’s comments frame this deal perfectly within Union Jack’s accelerating US strategy:
- Track Record: He highlights Union Jack’s remarkable run of “four consecutive discoveries” in the US over just 15 months.
- Moccasin Catalyst: The recent success at Moccasin, exhibiting similar play types, has bolstered confidence and directly catalysed this expansion into Sark.
- Portfolio Momentum: Sark is described as a “welcome addition” to a “rapidly growing portfolio of dynamic projects” in Oklahoma.
- Dual-Engine Strategy: Crucially, Bramhill positions the burgeoning US operations as “forming the foundations of a second valuable commercial business,” designed to complement the established, profit-generating Wressle asset in the UK. This is about diversification and growth.
- Sustained Activity: The company is now entering a “period of sustained activity in Oklahoma,” signalling more news flow and potential catalysts ahead.
The Verdict: Calculated Aggression
Union Jack’s Sark acquisition is a classic case of a company leveraging success to fund further, targeted growth. The deal structure involves paying a higher share of costs upfront for a majority working interest, betting squarely on their technical assessment and recent drilling form.
The geological setup is persuasive: multiple known productive targets stacked vertically, sitting right next door to proven production, with a statistically favourable 65% chance of success. The potential economics, with a net $10.9 million NPV against a $1.1 million outlay, offer asymmetric upside if successful.
This move emphatically underscores Union Jack’s strategic pivot. Oklahoma is no longer a speculative sideline; it’s becoming a core operational theatre alongside Wressle. The “second valuable commercial business” Bramhill references is actively being built, well by well. For investors, it signals confidence, momentum, and a clear focus on replicating their UK profitability stateside. The Sark spud date in early Q3 2025 is now firmly pencilled in as a key event. Watch this space – Oklahoma is getting interesting.
