The company recently received a bit of a boost after the UK government offered oil companies a tax break.

What does the company do?

Jersey Oil & Gas is a fast-growing, upstream oil and gas company focussed on the North Sea. The company is active in the development of the Greater Buchan Area — a major new area hub development in the Central North Sea.

According to Jersey Oil & Gas, the area benefits from 172m barrels of recoverable oil that are located within the Buchan oil field, Verbier, and J2 oil discoveries. It contends that there is additional significant exploration potential across the acreage.

Jersey Oil & Gas has a market capitalisation of just £81m, so that could explain why you may have not heard about it before.

Performance

The company is yet to produce any revenue as it has not started producing oil to date.

The firm registered a loss of £4.2m in 2021, and £2.8m in 2020. So clearly this oil and gas newcomer is valued according to its capacity to generate future revenues.

Prospects

In late April, Jersey Oil & Gas said its Greater Buchan Area farm-out is generating widespread interest. The company is actively engaged with multiple operating firms regarding the area. Jersey Oil & Gas said it was assessing development plans to assist the planned farm-out.

The company will also hope that oil prices remain high as future profitability will depend on it. Oil companies are currently registering record profits as benchmark crudes sit well above $100 a barrel level.

Last week, the International Energy Agency (IEA) said that global oil demand will reach new highs in 2023. The watchdog said that demand would likely hit 101.6m barrels per day in 2023.

This would be good news for Jersey Oil & Gas, although it seems unlikely that production could start that early. It’s worth highlighting that the firm would only be a small player in the industry.

Sunak’s tax break

One bonus for Jersey Oil & Gas is Chancellor Rishi Sunak’s recent tax break.

With the windfall tax announcement, the chancellor stipulated that oil and gas companies could offset considerable investment costs against tax.

The initiative offers 91p of tax savings for every £1 of investment made by companies. The UK government is looking to boost supply amid rising oil prices and increasing competition with Russia. Britain became a net importer in the early 2000s.

Sunak’s move is considered a powerful incentive for investment, especially for projects teetering on the edge of approval or rejection. Jersey Oil & Gas’s planned projects will likely look more attractive in the current investment climate.

Should I buy Jersey Oil & Gas shares?

So, should I buy Jersey Oil & Gas? Firstly, investments in commodities can be risky, and this is no different. Jersey Oil & Gas will also have higher recovery costs than some other operators as it focuses on more mature assets. This means it may be more susceptible to oil price fluctuations.

But equally, if we’re looking at higher oil prices for longer, it could be a good move. I’m not investing right now, but I’ll be putting this one on my watchlist.

Aminex is desperate for cash, and can barely wait for Kiliwani North to come on stream in the first half of 2015, as is currently planned. Solo’s bung of $3.5million for a 6.5% slice of the project is like fresh air to a suffocating man.

Flowing gas is lifeblood to these minnows

The deal holds the promise of further spondulix for Aminex, as Solo Oil has a 45-day option to increase its interest in the project to 13%, at a cost of a further $3.5million. It’s certainly music to the ears of long-suffering Aminex shareholders, and the ants-panted directors there will surely sit more easily now that the long-time Africa-focused firm is back on a more secure financial footing.

Yet the deal promises lifeblood for Solo, too, which is yet another junior oiler with no income, as the prospect of revenue from Kiliwani North will give the firm the means to carry on with its other projects.

It’s no surprise that the two firms are scratching each other’s backs. Solo is already in bed with Aminex with the larger Ruvuma gas project, which Aminex operates.  

Wheels within wheels

Judging by Solo Oil’s list of major shareholders — mostly institutions on behalf of nominee account holders — the firm has a large private-investor fan base. Yet the company is a different beast to Aminex, which gets down and dirty in the style of Red Adair, with oil on its hands and gas in its windpipe.

Solo Oil describes itself as an investment company. As such, it takes its investors money and splashes it around by buying chunks of projects operated by real oil firms such as Aminex. The latest Kiliwani North deal is typical. As well as interests in Africa, Solo Oil also has a Canadian investment, which it’s thinking of ditching due to lack of progress, and a slice of the Horse Hill prospect and associated licences on shore in the UK Weald basin, where drilling has just started.

Solo Oil’s chairman is serial entrepreneur David Lenigas, and those paying attention will recognise his name as a director of small-caps Leni Gas & Oil (LSE: LENI) and Rare Earth Minerals (LSE: REM), which I’ve written about recently. Both those firms are private-investor favourites too — capable of producing the wild share-price swings so beloved of small-cap investment operators like us. In a further twist, we can buy into the Horse Hill project, and other investments, via another vehicle chaired by David Lenigas, UK Oil & Gas Investments (LSE: UKOG).

I think UK Oil & Gas Investments may be flying under the radar at the moment, not least because it morphed from now-defunct serial disappointer Sarantel, which is a bit off putting to say the least! Right now, UK Oil & Gas Investments has a market cap of about £17 million, which compares to Solo Oil’s £40 million and Aminex’s £36 million. It’s probably worth digging deeper to see which of the three firms has the most bang for its buck — in other words, which company’s assets are most valuable.

What next?

Solo Oil’s strategy carries risk. Recently the firm said of its Canadian investment that the operator has been unable to raise the necessary funds to continue the development of the Ausable gas condensate field and no alternative has been found to unlock the potential. That’s grim, and underlines the fact that Solo has no control over operations because it is a passive partner.

A recent example of how ‘partner drag’ can really stuff a share price exists with Trap Oil (LSE: TRAP). The firm’s multiple investments all looked good on paper, but all came to naught as partner after partner backed out of its commitments to progress particular projects. The risk is that Solo is powerless to resist a similar negative outcome.

Solo Oil is an interesting investment proposition, as is UK Oil & Gas Investments and Aminex. I’m, perhaps, most tempted by Aminex, though,  because of its controlling interests and operator status.