The share price of AIM-listed ‘Gatwick Gusher’ stock UK Oil & Gas (LSE: UKOG) ended last week at 0.65p. This is over 50% lower than the 1.325p it was trading at when I wrote an article on its valuation 14 months ago.
Could it now be the bargain of the decade?
Valuation
In the article, I noted UKOG had very little in the way of proved reserves. As such, I felt it was better valued by the prices at which its various licences had changed hands between knowledgeable trade parties.
I wrote: “UKOG has been a willing buyer, and numerous trade parties have been willing sellers, of assets totalling £30.5m, which equates to 0.55p a share.” Things have changed over 14 months, so let me begin by updating the table of valuations from the previous article.
| Asset | Licence | UKOG interest | Value of UKOG interest | Total value of asset | |
| (1) | Horndean/Avington | PL211/PEDL070 | 10%/5% | £1.3m | £17.3m |
| (2) | Markwell’s Wood | PEDL126 | 100% | £0 | £0 |
| (3) | Horse Hill | PEDL137 & PEDL246 | 85.635% | £39.6m | £46.3m |
| (4) | Broadford Bridge | PEDL234 | 100% | £3.5m | £3.5m |
| (5) | A24 (formerly Holmwood) | PEDL143 | 67.5% | £1m | £1.5m |
| (6) | Isle of Wight | PEDL331 | 95% | £1.1m | £1.2m |
(1), (2), (4), (6) No change to interests and valuations since my previous article.
(3) UKOG has increased its interest in Horse Hill to 85.635% from 46.735% after deals with three parties. Average prices paid put the total value of the asset at £46.3m (previously £46.2m). The value of UKOG’s interest has increased to £39.6m (previously £21.6m).
(5) UKOG has increased its interest in A24 (formerly Holmwood) to 67.5% from 40% after deals with two parties. The prices paid put the total value of the asset at £1.5m (previously £7.5m). The value of UKOG’s interest is £1m (previously £3m).
Totting up, I previously had a value of £30.5m on UKOG’s licence interests. With 5.57bn shares in issue, this equated to 0.55p a share. Today, its licence interests are £46.5m. The number of shares in issue stands at 7.42bn, and this equates to 0.63p a share. So, the valuation is very close to UKOG’s current 0.65p share price.
Bargain of the decade?
Aside from increasing its interests in the Horse Hill and A24 licences, UKOG has made operational progress. Notably, it’s continued extended testing of its Horse Hill-1 well at both the Portland and Kimmeridge levels. It’s also drilled a horizontal well — Horse Hill-2/2z — designed to be a future production well from the Portland pool.
However, we’ve still had no updated Competent Persons Report (CPR) for the Portland or a first CPR for the Kimmeridge. As such, UKOG’s proved reserves (negligible) are little changed from 14 months ago.
With no reserve-based valuation available to me, and no reserve-based lending available to the company, the risk to shareholders of further dilution — and to my 0.63p a share valuation — is significant. Indeed, I view it as ominous that the company has recently sought (and gained) authority to issue up to 3bn new shares.
Due to the absence of CPRs and presence of high dilution risk, I’d want to see the share price at a significant discount to 0.63p. As such, I continue to view UKOG as a stock to avoid at the present time.
