UKOG (LSE: UKOG) shares have charged higher over the past week. The stock has increased in value by 137% over the past five days. Over the past month, shares in the oil and gas business are up 220%.
However, over the past 12 months, the stock’s performance is less impressive. Since the beginning of April last year, shares in UK Oil & Gas have only gained 21%.
It’s essential to take into account the stock’s historical performance when analysing its recent gains. Indeed, when viewed from a long-term perspective, this week’s performance isn’t that impressive.
Following recent gains, the stock is currently changing hands at 0.42p. That’s a decline of 95% from the stock’s five-year high of 8.4p. And if we go back to 2005, the all-time high for UKOG shares stands at 124p. Shareholders who’ve owned the stock since have lost 99.7% of their capital.
The downward trend of UKOG shares
I think these numbers say a lot about the company and its long-term prospects. Oil and gas exploration is an incredibly risky business. It’s also astonishingly expensive. One of the reasons why UKOG shares have performed so badly over the past decade and a half is that the firm has been issuing new shares to investors to raise cash.
For example since 2014, the number of shares in issue has increased from 842m to 12.5bn. With each new share issued, existing shareholders’ claim on the business is reduced. Therefore, each share becomes worth less. And the more shares the company has outstanding, the more it’ll have to issue in future to raise cash.
UKOG shares have been caught in this spiral for years. The company’s most recent fundraising was in October of last year. The firm issued 1.4bn new shares worth £2.2m to fund its share of initial drilling and seismic costs at the Resan Licence in Turkey.
It would appear the recent jump in the company’s shares can be linked back to the prospects of what could lie ahead at this Turkish prospect.
While this prospect could be a game-changer for UKOG shares, success is far from guaranteed. What’s more, I have to wonder how the company will fund the rest of its share of development costs? I think it’s likely more shares will be issued. This could depress the share price further.
Therefore, while there’s a chance UKOG could be on the verge of discovering a vast new oil reserve, I wouldn’t buy the company today. I’m concerned that even if the business does strike oil, it’ll have to tap shareholders for millions more in funding to progress with developing the prospect.
That said, the business could prove me wrong. Oil and gas exploration is one of those businesses that can make fortunes overnight. UKOG is still trying to develop the controversial Horse Hill oil project near Gatwick airport, which could have tremendous potential.
When coupled with the company’s overseas prospects, the group has the foundations of an international oil enterprise. However, turning these prospects into cold, hard cash and profit is proving harder than expected.
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Rupert Hargreaves 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.