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Why I think 2020 could be make-or-break for the UKOG share price

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This could be a crucial year for UK Oil & Gas (LSE: UKOG). And before anyone points it out to me, yes, I know, I suggested exactly the same thing for 2019. But here we are in 2020, with it still plodding along, and still not having made good on its claims of enormous volumes of oil and gas under its control.

Still, while the company hasn’t gone bust, its share price has crashed by 45% since my 2019 make-or-break thoughts and by 60% over the full 12 months. And since the exuberant peak of September 2017, the price is down a stunning 92%. Whatever timescale you examine, UKOG is not looking like much of a success.

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It’s all about the Horse Hill oil prospect beneath the Weald Basin in Surrey, dubbed the Gatwick Gusher after its proximity to the airport. But never mind gushing, I’m starting to wonder if there might be more oil at the airport itself.

Oil flow

Early claims suggested there could be up to 100bn barrels of hydrocarbons down there, but how much is flowing today? The firm’s latest production update, at the end of January, told us how its test pumping is going. Test production at the HH-1 Portland well managed a rate of 435 barrels of oil per day (bopd) for a period of six hours, with dry-oil output stabilising at an average of 293 bopd.

We heard that “the company now intends to accelerate the start of up to 25 years of continuous long-term production by six months,” with plans to bring HH-1 into production this spring. Up to 25 years, eh? Long-suffering shareholders must surely be opening the champagne to toast the imminent arrival of their much-delayed stream of oily riches.

Loan reduction

Meanwhile, two of its lenders, Riverfort Global Opportunities PCC and YA II PN, continue to convert some of their loans into equity. The latest instalment, on 3 February, saw the pair decide to convert £200,000 into UKOG shares, and that follows on from the conversion of £250,000 in January.

According to an update on Wednesday, of the original loan of £5.5m, some £3.15m remains unconverted. Why are they making these conversions? I could only speculate, though possibly not productively. With the share price steadily declining, the value of all these conversions doesn’t seem to be doing very well. But against that, it seems “the loan attracts 0% interest,” so it’s anybody’s guess what it’s all about.

Oil price

Is the oil price behind the UKOG share price weakness? Having fallen to only around $55 as I write, the potential value of any UKOG production will have slipped. But I really don’t see that as having a great deal of significance.

The biggest bearish factors to me seem to be the lack of commercial production, and the ongoing mystery surrounding the extent of the firm’s reserves in the continuing absence of a Competent Person’s Report.

We’ll have to wait and see if the production taps really do open in this spring. But either way, I don’t expect to be writing the same article this time next year.

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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.

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