As my Foolish colleague Kevin Godbold pointed out only a few days ago that shares in UK Oil and Gas Investments (LSE: UKOG) have plunged over the past 12 months, from a high of 9p per share, to 1.5p at the time of writing.
The company, which was once touted as being the saviour to the UK’s energy woes — thanks to its world-beating oil discovery near Gatwick airport — has struggled with one of the critical elements of oil production… getting the stuff out of the ground.
Due to its problems, investors have fled the UKOG share price. City analysts, who were once so optimistic about the firm’s prospects, have also turned cautious.
A lack of results
Despite management’s efforts to reassure stakeholders, it’s the lack of tangible results that have turned investors off.
UKOG has bounced from one problem to another and is very close to running out of cash. During the past 12 months, the company lost £2.27m and raised gross proceeds of £7.46m — via the issue of equity — to help fund operations.
The concern is that the business continues on its current path, losing money and issuing new equity, diluting existing shareholders. In this scenario, there could be further significant downside ahead for the UKOG share price.
However, I’m not willing to write off the business just yet. Indeed, there’s still a possibility that management could turn the ship around as the company is fully funded until the end of 2018. And throughout the rest of this year, there’s significant exploration activity planned.
Not giving up
Even though it has had little success at the wellhead so far, UKOG is optimistic about its prospects.
The company is planning a further sidetrack to the BB-1z well, which had encountered operational problems, and is also investigating the use of different techniques that may help unlock resource from the prospect. Also, it has finalised two further potential drilling sites within the broader PEDL234 licence area, described as being “within the thickest, most thermally mature and oil generative area” in the firm’s acreage.
Initial planning applications to drill these prospects will be submitted later this year and drilling is expected to begin in 2019, which could prove to be another catalyst for the stock.
Then there’s also the Horse Hill project, near Gatwick airport, to consider. Horse Hill will be a crucial focus for UKOG and it’s partners throughout 2018. UKOG is the largest London-listed stakeholder in Horse Hill, with a 32.435% interest. By the end of the year, management hopes to have a roadmap in place for commercial production and significant cash flow from this asset. Further development work is also expected throughout 2019.
Overall, while the UKOG share price has slumped to a dangerously low level over the past 12 months, over the next two years there are many catalysts that could cause the price to return to all-time highs. It’s not the time to write off the enterprise just yet.
Rupert Hargreaves owns no share 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.