MIDAS SHARE TIPS: We still need oil – so tap in to the search for profits

BP shareholders caused a stir at the company’s annual meeting last week, criticizing the oil giant for moving too slowly to cut emissions. However, major changes are afoot across the industry.

Ten years ago, oil and gas companies spent around £600 billion a year exploring and developing new fields. Today, that figure has fallen to just over £200 billion. Demand for these fuels is moving in the opposite direction, rising to about 2 percent a year, with new highs set for this year.

It takes seven to 10 years for new oil fields to come into production, so stocks are likely to fall dramatically this decade. Nothing in current behavioral patterns suggests that consumption will move in sync.

Jersey oil and gas is a small energy company based in the North Sea. Founder Andrew Benitz founded the company because he believed that dwindling supplies and growing demand would lead to more expensive oil and make his company attractive to investors. With the £2.45 shares, Benitz is almost certainly right.

Jersey Oil & Gas, known as JOG, was born from the shell of a North Sea company that had run into trouble. After complicated negotiations, Benitz and his team paid £1 for a company that held exploration licenses in the Greater Buchan Area, one of the most productive locations in the North Sea.

The initial foray was somewhat disappointing, but in 2019 JOG was awarded a license to develop the Buchan Field, a site originally owned by legendary oilman Algy Cluff.

Now it’s in Jersey’s hands. The field is thought to have buried about 100 million barrels of oil under the sea, equivalent to the daily production of some 30,000 barrels. However, getting it into production will require money, estimated at between $750m (£600m) and $1bn.

Jersey Oil & Gas is valued on the stock exchange at £84 million, so the group needs partners with big pockets. One such partner was unveiled earlier this month, NEO Energy, the fifth largest producer in the North Sea, backed by a £7bn Norwegian investment firm.

Under the deal, NEO will take a 50 percent share of the Buchan field, in return it will contribute 62.5 percent of the money needed to go into production.

The company is also funding development costs and JOG will receive at least $24 million in related payments. The transaction is particularly attractive as Benitz and his team have known and worked with the NEO crew in the past, so the partnership should deliver results quickly and smoothly.

Now Benitz is keen to find other partners, ideally companies that would take a similar approach to NEO, leaving JOG with a 20 percent stake in Buchan and none of the financing commitments.

Expectations are high, as the field is well known and several North Sea operators have already expressed interest.

The tax environment can also be helpful. The government imposed an extra tax on oil and gas companies last year, but also offered to subsidize investment in the North Sea with a fee equivalent to 91 pence for every £1 invested.

It therefore makes sense for companies in production to purchase land under development, so that they can offset the energy tax against that hefty tax benefit.

JOG shares rose over £3 on news of the NEO deal, but have since bounced back. They should be back on track once the transaction is complete and the team has explained exactly how they’re moving into production.

New deals are also likely to push the price higher in the coming months.

Midas verdict: Benitz has oil in his blood. His father is a veteran of the energy industry and even at the age of nearly 90 is involved in a copper exploration company in Namibia. Benitz always wanted to follow in his father’s footsteps and he has, spending his entire adult life in the oil and gas arena. With decades of experience and a clear plan for the future, Benitz must deliver results. At £2.45 JOG is a buy.

Traded on: GOAL Ticker: TO JOG Contact: jerseyoilandgas.com or 01534 858 622