The online financial discussion boards for UK Oil & Gas Investments (LSE: UKOG) are full of chatter as shareholders eagerly await flow test results from the company’s Broadford Bridge well, which is 27 km northeast of its so-called ‘Gatwick Gusher’ at Horse Hill.
Meanwhile, the chatroom buzz, which at one time surrounded Africa- and Asia-focused Ophir Energy (LSE: OPHR), is rather muted these days. A trading statement from the company this morning generated little excitement, as it contained no revelation on the finalisation of funding arrangements for its big Fortuna FLNG project in Equatorial Guinea.
Could the overdue news from both UKOG and Ophir send their shares soaring ? And which stock offers investors the better value?
As I’m writing, shares of AIM-listed UKOG are dealing at 3.4p, valuing it at £124m. Two of the 10 licences in which it has an interest have fields in stable production. Last year, one produced 144 gross barrels of oil per day (bopd) and the other 47. UKOG’s interests are 10% and 5% respectively, and its revenue for the year was £151,000.
Ophir is listed on the main market, where it’s a member of the FTSE SmallCap index. Its shares are trading at 73.5p (3% down after this morning’s trading statement), giving it a market cap of £519m. Last year, Ophir generated $107m revenue on 10,800 boepd from two fields in Thailand and one in Indonesia.
News round the corner
Flow tests at Horse Hill, in which UKOG has a 34.4% interest, produced a total aggregate rate from three horizons of 1,688 bopd. However, as these were recorded over just 8.5, 7.5 and four hours, they don’t tell us too much. In this respect, I suspect the current flow tests at Broadford Bridge will be similarly unsatisfactory, because testing has already overrun by a month, due to problems.
Delays to Ophir’s negotiation of funding for its Fortuna FLNG project have been frustrating but I’m optimistic about the news round the corner here. If all goes to plan, we’d see first gas in 2020 with 16,000 boepd to Ophir.
There’s little solid by which to value UKOG at the moment. The most recent trade sale of a Horse Hill licence interest valued the acreage at £142,215 per km2. If we were to apply this to UKOG’s entire 67% interest in the total 928 km2 of the 10 licences — which would be extremely generous, as much of the area is far behind Horse Hill– we’d get a valuation of £88m versus the market cap of £124m.
Based on this valuation and the fact that the company is being funded by what is colloquially known as ‘death spiral financing’, I’m inclined to rate the stock a ‘sell’.
By contrast, Ophir has significant commercial production, total liquidity of $427m, net cash of $117m and 1bn boe of reserves and resources offering asymmetric upside. For these reasons, I’m inclined to rate this stock a ‘buy’.
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