UK Oil & Gas (LSE: UKOG), famed for its early, ebullient estimates of the vast quantities of oil it reckoned it could be sitting on at the so-called ‘Gatwick Gusher’ in the Surrey Weald Basin, completed its most recent acquisition to take its holding in the key Horse Hill oil field to a controlling 85.6% in September.
Since then we’ve been getting regular updates of its operations, though they seem to me to be over-detailed if anything. The latest in a line of regular but unexciting instalments in the tale of the firm’s horizontal drilling at its Horse Hill-2z well came on Wednesday, telling us that this particular activity is now complete.
Sweet spot
It appears that “a total of approximately 2,500 ft of horizontal trajectory was drilled wholly within the Portland reservoir’s most oil productive zone or ‘sweet spot’,” which we are told provides “around 70 times greater exposure to the sweet-spot than seen in the HH-1 Portland vertical discovery well.”
UKOG went on to tell us that the new exposure “is the prime technical enabler for HH-2z to be capable of delivering significantly greater flow rates than those seen in the HH-1 vertical well,” though we’ll have to wait and see what that might actually turn out to be in number of barrels.
To put it into some sort of perspective for now, flow has continued at the earlier well and its total test production now stands at 77,200 barrels. That’s total, ever, stretching back over a year or so. So, significantly more than that, you say? Give me a moment to secure my hat lest I lose it in the celebrations.
Price gain
Despite my doubts, the UKOG share price is up 30% since its most recent low of 7 August, and on the face of it that sounds like significant progress in a short time. And in an update a week ago, the firm told us it had reduced its loan balance – so is the company’s financial situation looking better too?
We need to take a wider view of these two developments. The debt reduction accounts for only a modest £150,000 in relation to the firm’s £5.5m refinancing round in August, with two lenders having opted to convert that amount to UKOG shares. With several such transactions recently, the loan’s balance is down to £4.2m.
The result is even more dilution for existing shareholders, in a company that’s still in a cash-burn phase of its development and showing no sign of turning a profit any time soon.
Bargepole
And the share price strength? Well, the upwards blip was mostly in September and it’s already started falling back. And periodic but short-term rallies are regularly seen punctuating the UKOG share price chart’s steady decline.
What would I want to see before thinking of investing any cash in UKOG? I’d want to see less of the faffing around with minor bits of drilling, and a formal Competent Person’s Report on the possible volumes of hydrocarbons that might be profitable to extract. Of the latter, we’ve still seen no sign in how many years now?
