Shares in UK Oil & Gas (LSE: UKOG) have fallen 52% over the past 12 months, and have lost a crushing 89% of their value since their September 2017 peak.
There’s been the occasional short-term upwards blip, but it never seems to last and the price just carries on with its downward slide. There was one of those blips in August, leading to a gain of 13%… an unusually good month for UKOG shareholders.
And as of Tuesday’s market close, September has made a good start with a further gain of 5.6%. But before I look closer, why have the shares performed so badly over the past couple of years?
Where’s the oil?
It’s partly down to disappointment following early claims of huge quantities of oil beneath the firm’s Horse Hill prospect in West Sussex, at what had been optimistically dubbed the ‘Gatwick Gusher’. There was even talk of up to 100bn barrels of oil across the wider Weald Basin. So how much of this has so far made it to the surface?
According to the firm’s August progress update, it’s now pumped just 60,186 barrels from its test drilling. And we’ve still seen no sign of the long-awaited Competent Person’s Report to provide evidence of likely hydrocarbon reserves.
A big part of that fall is the dilution caused by the company’s frequent new share issues. UKOG has been raising new cash at regular intervals, using it to fund operations and acquisitions — some furthering its interest in Horse Hill, but also in unrelated areas.
Different this time?
The latest share price recovery started with a spike on 9 August. There was no news that day, but it came shortly after the company’s announcement on 7 August it had bought out Tellurian Investments to take its Horse Hill interest from 50.6% to 85.6%. Perhaps it was just a delayed response to that.
We have since heard UKOG has had two of its licences extended by two years — one is its Isle of Wight PEDL331 Arreton licence, the other PEDL143 in the northern Weald — but the share price didn’t really budge in response.
On thing I do find interesting about the early August price rise is that it’s held up for almost a month now, where as previous price strengthening has typically fallen away again in days. So what’s happened?
I can’t help feeling the share price has simply found its natural level, for now at least, where there just aren’t enough disillusioned shareholders left to keep on selling and pushing it down further. UKOG shares may well remain around the current price until one of two things happens — either we get hard evidence of significant commercial hydrocarbon deposits, or the whole thing collapses.
Riches or bust?
While we await more news, I still don’t see any answers to two key questions. With all of the new equity issues we’ve seen over the past couple of years, which significant investors are building up their holdings? I don’t see them.
And if the Weald is concealing such vast oily riches, how come UKOG has been able to buy up other companies’ interests so cheaply and why aren’t the big players like BP and Shell taking any interest?
I’m keeping well away.
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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.