UK Oil & Gas Investments (LSE: UKOG) is the UK stock of the year. This onshore shale explorer (market cap £149m), is the second most traded company of all, according to The Share Centre, trailing only Lloyds Banking Group (market cap £44.48bn).
Lloyds is 300 times bigger but UK Oil & Gas Investments has caught the imagination of investors. The AIM-listed shale minnow is up 157% year-to-date, its share price rising from 1.6p to today’s 4.12p (peaking at 11p), while Lloyds has only grown 3% over the same period.
UKOG has a stake in oil and gas assets located in the Weald Basin in Surrey and West Sussex. Its two flagship exploration wells are Broadford Bridge in West Sussex and Horse Hill, dubbed the Gatwick Gusher. As such, its fate lies in the hands of the planning committees of Surrey and West Sussex county councils, which certainly isn’t something, that giant peer BP has to worry about.
Drill baby, drill
Shale drilling remains controversial in the UK, despite our urgent need for energy, with campaign groups fighting excavation plans wherever they are submitted. However, in September, both West Sussex and Surrey green-lighted separate planning applications, and Environment Agency approval for the full programme was also granted. Protesters at Horse Hill site were cleared in a “swift and successful eviction” on 2 December
UKOG is also working to advance licences in Markwells Wood, Baxters Copse, Holmwood and the Isle of Wight. Executive chairman Stephen Sanderson, an experienced petroleum geologist who has uncovered multi-billion barrel wells off the coast of Norway, says it has an interest in 12 licenses covering 950 square kilometres.
Profit and loss
The stock is highly volatile, spiking on every piece of positive news, then crashing almost as quickly. So you have to be careful when you buy, otherwise you risk making an instant loss, especially if you dive in just as the profit takers are cashing out. If you bought in September, after the stock touched 10p, you will definitely not be sitting on a 157% gain.
UKOG has been steadily trading downwards since then, so much of the activity registered by The Share Centre will be selling. Although the group is potentially sitting on 100bn barrels of oil, it is not making a penny at the moment. Investors who buy today are taking a punt that all will go according to plan, so pore over its reports and make sure you understand the risks. It could be ready for take-off.
Well, well, well
Its 2018 programme will start the moment it has discharged Surrey’s pre-commencement conditions, expected by the end of this winter. Then we have to wait to hear if its wells are commercially viable. I am optimistic but cannot give you a definitive view, even Stephen Sanderson cannot know for sure. UKOG remains a gamble.
That is the risk you take in this sector, so manage it carefully. But you can eliminate other risks, such as overpaying. The price slide of the last three months reduces that risk. Watch UKOG over Christmas, it might slide lower still. Just be sure to buy before the next spike, not directly afterwards.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.