Investor appetite for UK shale stories is reflected in a stellar rise for Union Jack Oil (UJO:AIM). The counter is up 43.6% to 0.44p as a technical report outlines gross potential of 5.4 billion barrels and 2.7 trillion cubic feet of gas in the northern section of its 10%-owned PEDL201 licence.

Yet these numbers should be approached with caution. The report contains no risk factors or valuation of the prospective assets – after all, no operator has produced commercial quantities of oil or gas from shale in the UK.

That said, interest in the nascent industry is building ahead of the fourteenth onshore licensing round. This is reflected in corporate activity with Total (FP:PA) securing a stake earlier this year and IGas Energy (IGAS:AIM) pursuing a tie-up with peer Dart Group (DTE:ASX).

The disparity in the 5% move in the shares of the operator of the PEDL201block Egdon Resources (32.5%) and Union Jack's more dramatic advance can be explained by the difference in market cap – with the latter's at 3.7 million less than a tenth of its Aim-quoted peer.

The new announcement also confirms the Burton on the Wolds-1 conventional well is expected to commence in the third quarter and the company will also participate in the upcoming Wressle well.

House broker Northland Capital comments: 'UK shale is in its infancy and it is likely to take at least a year with the first vertical test conducted by Total to help evaluate the potential. In the meantime, the spud of Wressle conventional well will kick off a busy period of drilling for UJO that will have a material impact on its prospects.'


Issue Date: 02 Jun 2014