These four AIM North Sea oil stocks are set for a big end to 2022

It promises to be a big fourth quarter for a number of small-cap North Sea firms and those invested in them.

Onshore shale and fracking garnered a great deal of attention this past week – with IGas Energy and Egdon shares rising – as the government enacted on Thursday the recently announced plans to lift the ban on the controversial extraction technique.

Whilst there’s much ado about shale, arguably the progression of projects in the North Sea remains the most tangible and accessible means of boosting the UK’s domestic energy security.

The North Sea is quite suddenly in focus for investors, as a result of recent world events and the British government’s necessary response to support the extraction domestic resources.

Most of the companies set to benefit have been working for many years in less favourable markets to progress assets to the point where today they are on the cusp on high-impact value catalysts.

It has taken a long time for companies like i3 Energy PLC (AIM:I3E, TSX:ITE, OTC:ITEEF), Europa Oil & Gas (Holdings) PLC (AIM:EOG), Deltic Energy PLC (AIM:DELT), and Jersey Oil and Gas PLC (AIM:JOG, OTC:JYOGF)to become an overnight success.

All, however, are now primed for a big and impactful few months whether it’s at the rig or the deal table.

Here, we take a look at what’s occurring and what catalysts investors ought to watch for.

Deltic Energy

Deltic is partnered into Shell’s new exploration programme in the North Sea, which sees the Pensacola well drilled in the coming weeks.

Pensacola is targeting a 309bn cubic feet (BCF) gas resource, meaning success has the potential to unlock a significant new source of gas to the UK and as such has been highly anticipated by the industry.

Deltic shares are up just over 50% in 2022 to date, rising to 3.62p, though with a current market value of around £58mln it remains a minnow versus the value potential should the heoretically modelled resource be proven and progressed towards a field development scenario.

With Shell leading the project, and with the support of new government incentives, the asset could be expedited significantly subject to well results.

Earlier in September, Deltic raised some £17mln so that the company can participate in a second Shell operated gas exploration well – Selene.

The Selene well is estimate to contain 318 BCF of gas and could be drilled within the next 12-18 months.

Deltic has a 30% interest in Pensacola and 50% of Selene, meanwhile, it has a separate portfolio of exploration prospects in partnership with Capricorn Energy (formerly Cairn) which while at an earlier stage similarly position the company for further high impact opportunities.

Pensacola and Selene are some of the most significant new wells to be drilled in the region for some time, and, given Deltic’s current market value it is positioned for significant upside should either well come in.

I3 Energy & Europa

This pair of AIM-quoted oil and gas firms are also positioned for high impact catalysts from the drill-bit, following the spudding this week of the Serenity appraisal well.

I3 Energy holds a 75% interest in the pre-development North Sea field alongside Europa which is earning into a 25% stake – by paying 46.25% of the Serenity well costs (up to a gross cap of £15mln).

Serenity is a data-gathering exercise designed to confirm the extent and commercial value of the field.

The plan is for the well to provide sufficient data for the partners to take forward Serenity into a development scenario, unlocking new production and establishing lucrative revenues.

Significantly, for investors, i3 Energy is mainly valued based on its non-operated production assets in Canada so the potential at Serenity is not really accounted for at present.

“We believe that Serenity represents something of a free option because its value is not reflected in the company’s share price, but it does have potential to deliver highly significant upside,” WH Ireland analyst Brendan Long said in a recent note.

“We believe that the global energy crisis is particularly acute in Europe and that that the crisis is setting a favourable backdrop for UK North Sea oil & gas developments.

“In our opinion, i3 Energy has a track record of getting perfect bull’s eyes in terms of timing events to correspond with the psychology of the commodity price cycle and we see the company’s advancement of Serenity in that light.”

According to WH Ireland, a success at Serenity could be worth some 64.6p per share to I3 – versus the company’s current share price of 23.82p

Jersey Oil & Gas (Jersey Oil and Gas PLC (AIM:JOG, OTC:JYOGF))

Value creation is most likely to come from the deal table at Jersey Oil & Gas which has a North Sea field development project on the runway and all that’s required is a good deal with a good new partner.

Jersey this week confirmed continuing progress in its partnering talks for the Greater Buchan Area (GBA), with multiple “serious, well-funded counterparties” engaged in commercial talks and technical due diligence, and, that process is expected to reach an advanced stage next month.

The right deal can put GBA on the path to production.

“Interest in the farm-out has been boosted by the favourable pricing, fiscal and political environment, joint technical studies are nearing completion and commercial discussions are advancing,” stockbroker FinnCap said following Thursday’s financial results statement.

“The GBA attractions are clear – it is one of a small number of UK North Sea oil and gas projects that are both ‘development ready’ and contain significant resources.”

The stockbroker added: “With cash of £8.7m, JOG remains well funded to see the farm-out process through to a successful conclusion, the delivery of which will materially de-risk JOG’s asset value and put it on the path to becoming a full-cycle E&P company.”

Jersey, like its small-cap North Sea peers, has been presented with an anomalous window of opportunity created by the external macro environment.

The coming weeks may prove to be key for investors which will watch closely for deal news.