Jersey Oil & Gas (LSE:JOG) shares have soared over the past year. In fact, the stock is up 64% over the past 12 months.
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.
