It’s fair to say that UK Oil & Gas Investments (LSE: UKOG) is a very speculative investment. On the one hand, if the company and its partners manage to develop their oil-rich acreage in the Weald Basin of southern England successfully, then UK Oil & Gas could become one of the world’s largest exploration and production companies.
On the other hand, if the firm struggles to develop its assets and problems outside of the company’s control emerge, then UK Oil & Gas will join the legions of other failed oil minnows.
That said, the events of the past few weeks have proven that UK Oil & Gas isn’t just another oil minnow that promises the world but fails to deliver. As announced on Tuesday, Horse Hill Developments Limited has conducted a successful flow test at the HH-1 discovery well, located within onshore exploration Licence PEDL137. UK Oil & Gas owns a 20% interest in PEDL137, a 30% direct interest in Horse Hill Developments and another 1.02% interest in Horse Hill Developments via its 6% interest in Angus Energy Limited.
Diversified assets
Unlike most early stage exploration and production companies, UK Oil & Gas isn’t a one-trick pony. The company has a number of assets across the south of England, several of which are already producing oil and revenue for the company.
During the six months ended 31 March 2015, the most recent period for which results are available, the company’s share of production from the Horndean and Avington oil fields in the Weald Basin amounted to 3,434 barrels of oil. UK Oil & Gas collected revenues of £200,000 from the sale of this oil. Further, at the end of the period the company had cash and receivables of approximately £8m, with additional borrowing capacity of $9.6m. These figures are out of date, but it’s clear that since they were released, UK Oil & Gas has significantly improved its outlook with the upbeat test results from Horse Hill and the upbeat figures from the company’s Isle of Wight acreage.
Set to double
According to my figures, there’s only one set of City analysts covering UK Oil & Gas at present, but these analysts believe that the company’s shares could be worth as much as 5p in the near-term — that’s an increase of 134% from current levels. Still, until commercial production officially commences at Horse Hill’s wells in the Weald Basin, in my view it’s likely that the market will continue to view UK Oil & Gas with a degree of scepticism. So, while UK Oil & Gas might be on the way to becoming one of the UK’s premier oil companies, it still has a long way to go, and it will take time for the business to develop existing assets.
UK Oil & Gas certainly isn’t a company for widows and orphans, but if you’re willing to take the risk, the company’s shares could rise 134% from current levels if City forecasts are to be believed.
