3 reasons why I’d buy the UKOG share price for 2020

Rupert Hargreaves explains why he thinks 2020 could be the year the UKOG share price takes off.

| 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.

I turned cautiously bullish on the UKOG (LSE: UKOG) share price in the second half of 2019 as the company’s plan to become one of the UK’s largest onshore oil companies started to gather steam.

And considering the progress the business has made over the past few months, I reckon 2020 could finally be the year that UKOG’s shareholders are rewarded for their patience. 

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Oil production 

Over the past 12 months, it has graduated from being an oil explorer to an oil producer. As my Foolish colleague Alan Oscroft recently noted, total test production was 77,200 barrels in mid-November, and it has risen further since. 

While these numbers do not tell us much about daily production volumes, in my opinion, this level of production is still a big deal. UKOG is producing oil and that means the company is also generating revenue. It might not be a huge revenue stream, but the business needs all of the money it can get while it pushes ahead with development plans. 

Cash flow 

This production has given it some much-needed cash flow. For the six months ended 31 March 2019, the company booked £1.6m of receipts from the sale of test volumes. This helped reduce the overall net cash outflow from investing activities from £5m for the six months ending March 2018 to £1.7m for the 2019 fiscal period.

Since these numbers were published, UKOG has continued to produce and sell oil. Therefore, I expect the company to reveal a big jump in cash flow figures when it reports its final results for the year ended 30 September 2019 next year.

And the company should report further progress in its interim figures for the period up to 31 March 2020. 

Financial stability 

The third and final reason why I think the UKOG share price could jump in 2020 is the company’s improving financial position. I’ve already covered the firm’s growing cash flows above, and it is also reducing debt. 

At the beginning of August, UKOG agreed a £5.5m financing package with Riverfront Global Opportunities PCC Limited and YA II PN Ltd with an interest rate of 0% and maturity date of 16 August 2021. Over the past few weeks, the lenders have been converting sections of the loan into shares, which has reduced the outstanding balance to £3.8m. 

Unfortunately, these conversions have diluted existing shareholders, but I think UKOG made the right decision by agreeing to borrow the money on these terms to fund its well development.

Now that cash is flowing into the firm’s bank accounts from oil production, it might be able to agree some funding from a more traditional lender, reducing the risk of further dilution. To do that, the company will first have to pay down the £3.8m liability, but that is already happening.

The bottom line

All in all, 2019 has been a transformational year for UKOG and 2020 could be another year of significant progress if the business manages to push ahead with its drilling and production plans for the year. 

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Rupert Hargreaves owns no share 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.

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 considered, so you should consider taking independent financial advice.

More on Investing Articles

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Lloyds shares are down 10% in 2022. What next?

Lloyds shares have dropped by almost a tenth so far in 2022. But the bank is in good shape to…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How to aim to use the Warren Buffett method to make a million, starting today

Why do investors love Warren Buffett so much? His 3.6 million percent investment return since 1965 probably has a lot…

Read more »

Various denominations of notes in a pile
Investing Articles

3 big income stocks hiding in plain sight

There are plenty of high-paying income stocks flying under the radar right now. Paul Summers offers three examples he likes.

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

2 FTSE 100 shares I’m buying in July

Andrew Woods wonders whether these two FTSE 100 shares could bring growth to his portfolio and if he should add…

Read more »

positive mental health woman
Investing Articles

2 dirt-cheap stocks investors should buy to hold until 2030!

Recent market volatility means lots of UK shares now offer brilliant value. Here are two ultra-cheap stocks on my radar…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

My top 7 dividend shares to buy as inflation soars

Dividend shares can be an excellent way to earn some passive income. Our writer considers seven top picks to help…

Read more »

Woman looking at a jar of pennies
Investing Articles

I think the JD Sports share price is a bargain. Here’s why

Our writer explains why the JD Sports share price has led him to buy more for his portfolio.

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 this tech stock one of the best shares to buy now?

Jabran Khan is on the hunt for the best shares to buy now for his holdings and takes a closer…

Read more »