This is how much £1k invested in UKOG shares 3 years ago would be worth now

The booms and busts of Oil & Gas make it a notoriously volatile sector to invest in. How have long-term UKOG investors fared?

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The UK Oil and Gas (LSE:UKOG) share price has endured another turbulent month, after declining in value since October.

For investors looking to put money into stable investments for long-term growth, UKOG is not the answer. It has a market capitalisation of £65m, there is no dividend yield and earnings per share are negative.

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In September 2017, the UKOG share price hit a high of 8.7p and for a lucky few, a lot of money will have been made. The UKOG share price had been trading around 1.4p on December 20 2016, and is hovering at 0.9p today. Those who bought three years ago and still hold, will not have seen their investment grow — it will have declined by 37%. 

If you’d bought £1,000 worth of UKOG shares in December 2016, they would now be worth around £630.

Back in 2015, UKOG began testing for oil at its West Sussex site, called Horse Hill, near Gatwick airport. It’s rumoured to contain as much as 158m barrels of oil per square mile, which has understandably excited investors and excited interest in the venture.

In September, the company increased its stake in the field to a controlling 85.6% and flow testing was due to start imminently. However, earlier this month the firm was driven into an emergency £2m fundraising effort after its joint venture partners Doriemus and Alba Minerals ran out of money. An institutional investor fully funded this placing at 0.85p per share, but the UKOG share price fell 8% on the news.

Beware of AIM

UKOG has the misfortune of being both an oil and gas share and a penny share listed on AIM. Oil & Gas is a notoriously risky and volatile investment sector, while AIM is the ‘Wild West’ of the share-dealing arena and comes with its own additional risk.

Long-term investors should know the pitfalls of trading shares on AIM. The AIM index is much less heavily regulated than the major FTSE indices. As such it’s suspected to be home to relentless shorting, pumping and dumping, price manipulation through bulletin board ramping and other dodgy dealings.

Price of oil

Share prices in Oil & Gas hinge on the price of oil, but that price depends on more external influences, such as the trade war between the US and China, decisions made by OPEC, the risk of war or terrorism and the world economy at large. Therefore, although the quality of the company, its funding, management integrity and decision-making processes are all paramount, oil company share prices are constantly affected by many uncontrollable factors too.

I can see why investors are enticed by UKOG’s potential, many fortunes have been established in oil booms, but the risks should not be overlooked. Many more fortunes have been lost on AIM than won.

In mid-December, UKOG unveiled plans to install two exploration drills at privately owned sites at Arreton and Godshill on the Isle of Wight. This will require planning permission, but if granted, flow-testing should start in Autumn 2020. UKOG expects the sites would be in operation for 25 years and if successful, each site might generate £0.5bn during its lifetime. It’s very early days and there are many factors to consider, including environmental concerns.

The risks surrounding UKOG mean it doesn’t interest me. There is a lot of speculation, plus funding worries and external pressures to consider. I’ll continue to avoid the share.

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Kirsteen 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.

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.

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