Is it finally time to return to the UKOG share price?

With the Gatwick Gusher gushing again, should I buy some of UK Oil & Gas plc’s (LON: UKOG) shares?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Something momentous happened last month. UK Oil & Gas (LSE: UKOG) declared its Horse Hill Portland oil field – the so-called Gatwick Gusher — commercially viable following an extended well test. The firm even transported several tankers of crude oil to Fawley refinery during the test – this is real oil we are talking about, in Surrey, under the Weald Basin. Amazing.

Preparing for field development

Are the Home Counties set to become a new Texas? Will we see the gentle English landscape covered with a forest of nodding donkey oil pumps, just as the highlands of Scotland have sprouted acres of wind generators? I hope not, and with a bit of luck, that vision is just me getting carried away with my imagination. In any case, I think technology has moved on since the days of the nodding donkey so that oil wells can be less visually obtrusive.

However, the company did say Horse Hill Developments, which is the operating company, plans to begin long-term Portland oil production during 2019, as long as it gets the necessary regulatory consents. The directors’ current vision is to develop three production wells and two pressure support wells. UKOG owns around 47% of the project.

UKOG’s chief executive, Stephen Sanderson, said in last month’s update that the declaration of Portland commercial viability “is a significant milestone for the company.” He pointed out that it “transforms” Horse Hill from an exploration endeavour into a “fully-fledged field development.” Indeed, UKOG could become a producing oil firm with significant cash inflows ramping up during 2019 if all goes well. The results of the extended well test were better than the directors expected and they now think the first planned horizontal producer well, HH-2, could deliver sustained oil rates of 720 to 1,080 barrels of oil per day (bopd). The company plans to spud (start drilling) the well in early 2019.

Potential long-term production

Looking forward, Stephen Sanderson anticipates“the possibility of combined long-term production” from both the Portland and nearby Kimmeridge prospects, which he said would be a “potentially transformational prospect for Horse Hill and the company.” However, the firm noted in the announcement that there is no absolute guarantee that forecast, targeted or calculated rates of production will be achieved. Perhaps that’s why the stock market’s reaction to the news has been so muted.

Indeed, the share price has barely budged since the announcement last month, which is a far cry from the big jumps and plunges it has been making over the last few years. But I think there are good reasons for that. Firstly, there’s still a long way to go operationally before oil starts flowing and cash starts rolling in. Secondly, the firm has been back to the market repeatedly for funds with the consequence that long-standing shareholders have been diluted. When I first wrote about the company four years ago, the market capitalisation stood at around £17m. Today it’s at almost £106m, so the stakes are a lot higher. Finally, with UKOG as a producer, will it be valued more like a producer by the market than like an explorer? I think we’ve seen something like that happen with Soco International,for example, where a lower valuation has depressed the share price to a shadow of its former self. In summary, I think UKOG today is interesting, but still highly speculative.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »