Is time running out as the UKOG share price slides?

I think UK Oil & Gas plc (LON: UKOG) might be a risk too far for me in 2019.

| 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.

sdf

I continue to wonder whethere UK Oil & Gas (LSE: UKOG) is reaching a make-or-break point.

The most recent Horse Hill-1 production test update in May reported “significantly better than expected results” from the latest pressure build-up test.

Total Portland oil production now stands at more than 20,500 barrels, with a reported stable rate of 220 barrels per day with “modest reservoir pressure draw-down.” And when Kimmeridge test results are added, total production exceeds 45,500 barrels.

Profits?

These updates are good, but we’re still talking of tiny amounts compared to claims that there could be up to 100bn barrels beneath the Weald Basin. At an average price of, say, $65 per barrel, total test production so far is worth around £2.3m, which is peanuts for a firm that reported an operating loss last year of £3.76m. Sure, it’s only test volumes right now, but we still don’t have much of an objective handle on likely production flow rates.

Chief executive Stephen Sanderson said: “The Horse Hill oil field and its associated significant future cash flow stream is of paramount importance to UKOG and will, therefore, continue to be the company’s prime short-term focus.

That’s clearly the way it should be, but I’m becoming increasingly concerned at the company’s purchases of further interests in other resources. The latest target is the “highly prospective PEDL143 exploration licence,” eight miles to the east, which we are told is a “direct geological look-alike” to the Horse Hill field.

Acquisitions

UKOG has acquired Europa Oil and Gas‘s 20% interest and Union Jack Oil‘s 7.5% of the field, for £300,000 and £112,500 respectively, to give UKOG a 67.5% interest in PEDL143. The acquisition has been funded by issuing of approximately 35.7m new UKOG shares, so it doesn’t use up any of the firm’s precious cash balance, but it does add to a particular concern for me.

And that is UKOG’s proclivity towards issuing new shares, especially coming shortly after a £3.5m issue in March. That issue had to be placed at a 12.5% discount to the market price at the time, and the cash is to be “utilised in the assessment and acquisition of new opportunities, both in the UK onshore and elsewhere.”

It’s all, apparently, in line with the firm’s strategy, but I do get twitchy when I see an oil explorer pursuing more and more high-risk prospective acquisitions when the supposed jewel in its crown — in this case Horse Hill 1 — has yet to be progressed beyond tiny test trickles.

Gamble

Even if UKOG should come good and start pumping out big profits, we still have to get past that dirty word — dilution. How much of UKOG’s future profits will still be attributable to current shareholders and how much will go into the pockets of new investors subscribing for new shares at knockdown prices? I have no idea, and that’s the problem.

The market seems to share my concern. Though there’s been a small uptick in June, the UKOG share price has fallen 44% since February’s 2019 high — and by 88% since the height of September 2017’s optimism.

I’ve no idea whether shareholders will end up rolling in cash or being wiped out — and I’m too old for that kind of risk.

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.

Alan Oscroft 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

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in July [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

Warren Buffett’s Berkshire Hathaway dumped this growth stock. Here’s why I won’t

Eyebrows were raised when Warren Buffett's company invested in this Latin American fintech disruptor a few years ago. But now…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

£15k to spend? 3 UK shares, investment trusts and ETFs to consider for a £1,185 second income

By harnessing a range of different dividend stocks, I'm confident this mini portfolio might pay a large long-term second income.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Tesla stock about to crash?

Tesla stock was on the slide today, shedding around $80bn in market value. What's going on with the electric vehicle…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

Should British investors consider buying Apple stock while it’s down 14% in 2025?

Apple stock has underperformed in 2025, falling more than 10%. Is this the buying opportunity UK investors have been waiting…

Read more »

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
US Stock

2 AI growth shares that I think are still undervalued

Jon Smith flags up two AI growth shares that aren't as overhyped as some peers, making them appealing for him…

Read more »

Thoughtful man using his phone while riding on a train and looking through the window
Investing Articles

Where is the next Nvidia stock right now?

Nvidia stock has delivered jaw-dropping gains. Here are 10 growth shares that have the potential to also produce big returns…

Read more »

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

Could these FTSE 100 stocks explode in July?

Looking for FTSE stocks that could catch fire this month? Here are the share price prospects of two popular London…

Read more »