The UKOG share price is up 30% since August. Time to buy?

UK Oil & Gas (LON: UKOG) has completed its latest drilling operation, hitting what it calls a sweet spot.

| 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.

UK Oil & Gas (LSE: UKOG), famed for its early, ebullient estimates of the vast quantities of oil it reckoned it could be sitting on at the so-called ‘Gatwick Gusher’ in the Surrey Weald Basin, completed its most recent acquisition to take its holding in the key Horse Hill oil field to a controlling 85.6% in September.

Since then we’ve been getting regular updates of its operations, though they seem to me to be over-detailed if anything. The latest in a line of regular but unexciting instalments in the tale of the firm’s horizontal drilling at its Horse Hill-2z well came on Wednesday, telling us that this particular activity is now complete.

Sweet spot

It appears that “a total of approximately 2,500 ft of horizontal trajectory was drilled wholly within the Portland reservoir’s most oil productive zone or ‘sweet spot’,” which we are told provides “around 70 times greater exposure to the sweet-spot than seen in the HH-1 Portland vertical discovery well.”

UKOG went on to tell us that the new exposure “is the prime technical enabler for HH-2z to be capable of delivering significantly greater flow rates than those seen in the HH-1 vertical well,” though we’ll have to wait and see what that might actually turn out to be in number of barrels.

To put it into some sort of perspective for now, flow has continued at the earlier well and its total test production now stands at 77,200 barrels. That’s total, ever, stretching back over a year or so. So, significantly more than that, you say? Give me a moment to secure my hat lest I lose it in the celebrations.

Price gain

Despite my doubts, the UKOG share price is up 30% since its most recent low of 7 August, and on the face of it that sounds like significant progress in a short time. And in an update a week ago, the firm told us it had reduced its loan balance – so is the company’s financial situation looking better too?

We need to take a wider view of these two developments. The debt reduction accounts for only a modest £150,000 in relation to the firm’s £5.5m refinancing round in August, with two lenders having opted to convert that amount to UKOG shares. With several such transactions recently, the loan’s balance is down to £4.2m.

The result is even more dilution for existing shareholders, in a company that’s still in a cash-burn phase of its development and showing no sign of turning a profit any time soon.

Bargepole

And the share price strength? Well, the upwards blip was mostly in September and it’s already started falling back. And periodic but short-term rallies are regularly seen punctuating the UKOG share price chart’s steady decline.

What would I want to see before thinking of investing any cash in UKOG? I’d want to see less of the faffing around with minor bits of drilling, and a formal Competent Person’s Report on the possible volumes of hydrocarbons that might be profitable to extract. Of the latter, we’ve still seen no sign in how many years now?

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

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

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

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »