Is now the perfect time to invest in the UKOG share price?

The UK Oil & Gas plc (LON: UKOG) share price is down 50% in 2018, so is it finally time to pick up a bargain?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in UK Oil & Gas (LSE: UKOG) fired the imaginations of investors after the company’s so-called ‘Gatwick Gusher’ resource at Horse Hill, West Sussex, showed early promise of very substantial reserves.

The shares spiked in 2017. But since then, a combination of disappointing flow test results and a lengthening timescale before any profits look like coming in, have conspired to seriously damage confidence, and the shares have slumped. They’ve lost around 50% so far in 2018 alone, even from a depressed start to the year.

And then, just after further investigation allowed the AIM-based oil explorer to declare that its Horse Hill prospects are commercially viable, the oil price has taken a renewed turn for the worse. A barrel of Brent Crude, from a high of more than $85 in early October, has fallen all the way back to $60, as I write.

There’s no revenue on the horizon this year or next, so what’s the biggest risk if you invest in UKOG shares now? It’s clearly that the longer things go the more likely it is that new funding will be needed to get the company to turning its first profit. And the further the oil price falls, the lower the valuation of the firm’s assets, and the cheaper the entry point will need to be for new investors to be tempted in.

As Rupert Hargreaves has pointed out, UKOG’s shares have been massively diluted in the years it’s taken to get this far, and the earliest shareholders now own a much smaller stake in the firm than they did. We could well face more of the same.

Frankly, right now, I can’t rate UKOG’s chances of success at any more than 50/50, and that’s nowhere near good enough for me.

Make or break?

Meanwhile, shares in Frontera Resources (LSE: FRR) have been reversing their recent gains since the start of the month, and the firm’s erratic year-to-date share price chart has been on a slide again. It’s down 27% so far in 2018.

If a tough oil business wan’t enough, Frontera is taking legal action against director Stephen Hope over accusations of a breach of his fiduciary duties related to the Outrider Master Fund. The company is claiming damages of around $56m, which could make a significant difference to its balance sheet. 

On Monday, the company announced “the mobilization of a workover rig to T-16 well” as part of its Taribani onshore field at Block 12 in Georgia. Frontera says it “has successfully completed a technical study of Taribani wells drilled by a previous operator,” and the T-16 well, along with T-24 and T-31, have been selected for workover operations which will clean and check them for future sidetracking/drilling operations.

The big risk, as Rupert suggests, is that Block 12 could be all or nothing for Frontera which, in many ways, echoes the Horse Hill situation at UKOG. Similarly too, Frontera is battling to keep its balance sheet healthy and is focusing on cutting operating costs as it, also, has no forecast profits on the horizon.

As it stands, Frontera could well be at a pivotal point in its existence, and I see it as another 50/50 gamble, like UK Oil & Gas. I wouldn’t touch either.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares 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.

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »