Investors in domestic-focused energy explorer UK Oil & Gas (LSE: UKOG) need strong nerves as its share price has crashed since spiking to 9p in September 2017. Today it trades at 1.35p, despite today’s 15% jump.
Hopes that the AIM-listed group would be able to exploit its controlling interest in the Horse Hill asset in Sussex, popularly known as the Gatwick Gusher, dwindled on disappointing test updates and public suspicions over shale production.
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The stock is up sharply today, but given that this is an increase of 0.13p, I wouldn’t read too much into that. I have scoured the internet, and the only news that seems to apply to UK Oil & Gas is a claim that Britain’s shale gas production could match the best performing shale basin in the US, the Marcellus formation. That’s according to UK Onshore Oil and Gas, which is responsible for promoting onshore gas exploration.
However, the news has done little for IGas Energy, which announced yesterday that it had discovered a “significant” seam of shale gas at its Springs Road site in Nottinghamshire.
The UK’s progress on hydraulic fracturing has been painfully slow, held back by tight government controls on seismic activity and eco-opposition. However UK Oil & Gas UK announced plans in January to drill up to nine production, appraisal and exploration wells during 2019 and 2020, and my colleague Rupert Hargreaves reckons its share price has the potential to triple this year.
After last year’s drilling disappointments, the £75m group is now pinning its hopes on horizontal wells at Horse Hill that could potentially deliver more than 2,000 barrels of oil a day. This remains a high risk, high reward play. Further dramatic share price movements on little or no news whatsoever can be expected. Not for amateurs or those with faint hearts.
Oil and gas explorer Cairn Energy (LSE: CNE) has been heading in the other direction today, falling around 6% after reporting net losses of $1.1bn in 2018, mostly due to written-down investments in India. It also posted an operating loss US$182m from the impairment of its Kraken site after its reserves were revised downwards.
CEO Simon Thomson said Cairn’s 2019 material exploration programme is targeting a billion barrels of gross resources, supported by cash flow from its production base, and looks forward “to additional sustained production and cash flow generation over the long term”.
Thomson also talked up the FTSE 250 group’s “financial flexibility and continued focus on capital discipline”. Annual oil and gas sales revenue totalled $396m, with the average realised price standing at $68 per barrel of oil equivalent (boepd), against an average production cost of just $20.50 per barrel.
Combined net production averaged 17,500 boepd, but this is expected to hit between 19,000 and 22,000 this year, at an average production cost of $20. Year-end group cash totalled $66m, with $85m drawn under its $575m reserve-based lending facility.
The £99om group has assets in Senegal, the UK, Norway, Republic of Ireland and Mexico, and Peter Stephens reckons it has a sound strategy that should lead to rising profitability. Right now, the market is less than convinced.