The UK Oil and Gas (LSE: UKOG) share price isn’t struggling for momentum, however. That’s even though Brent oil prices have fallen back below $76 per barrel on rising market tensions. The UK oil share is up 5% in start-of-week trading on fresh drilling news (though it remains 27% lower year-on-year).

UKOG rises as drilling starts at Basur-Resan

UKOG’s share price leapt after the firm announced that drilling had commenced at the Basur-3 field in Turkey.

Air drilling of a 17-and-a-half-inch diameter hole began on 26 June, UK Oil & Gas said, following the mobilisation of the Oceanmec Karahan ZJ40DZ rig to the site in recent days. The AIM-quoted share holds a 50% stake in Basur-3 and the surrounding 305 km² Resan M47-b1, b2 licence.

Stephen Sanderson, chief executive of UK Oil & Gas, commented that “the start of Basur-3 drilling is a landmark milestone for UKOG Turkey and the company.” The oil explorer described the appraisal well as the first modern well designed to properly study the extent and commercial viability of the Basur-Resan oil pool that was discovered in the 1950s and 1960s.

It has been estimated that the Basur-Resan oil discovery contains an estimated mean discovered recoverable oil volume of 37.2m barrels. UKOG said back in January that “rapid monetisation of the discovery’s success case is possible within a year.”

UK oil share Petrofac slumps

The news coming out of Petrofac (LSE: PFC) on Monday hasn’t been nearly as encouraging. This UK oil share’s dropped 2% in value on the day to two-month lows. And at 114p, the company is now down 36% over the past 12 months.

Petrofac’s share price dropped after news that the Covid-19 crisis continues to damage project schedules at its Engineering and Construction (E&C) division. The small-cap said “the recovery in oil prices has yet to manifest itself in a significant expansion in capital spending by our clients.”

And it added that “we continue to prudently assume that capital discipline by clients will delay some awards in the near term, with new orders likely to remain depressed in E&C in the current year.”

Orders at E&C had fallen to $2.3bn as of 31 May from $3.3bn a year earlier. And this has caused the order backlog at group level to also fall by $1bn to $4bn. Petrofac said that its recent suspension from competing for new awards in the UAE, as well as clients deferring contract awards in other markets, had caused orders to drop sharply at E&C. The company currently has an active bidding pipeline on contracts worth $48bn through to the end of 2022.

The post Here’s what UK shares UKOG and Petrofac reported today appeared first on The Motley Fool UK.

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.

Complex outlook 

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.

The post Here’s what I’d do about UKOG shares today appeared first on The Motley Fool UK.

However, the company’s long-term outlook remains uncertain. Indeed, it is still relying on the kindness of strangers to keep the lights on. UKOG recently raised £4.2m by issuing new shares to fund exploration and development activities. The money was also used to repay an outstanding loan of £1.75m. 

While the company has made a great deal of progress over the past year with its drilling and exploration activities, it’s still not self-sufficient. It is unlikely to reach this stage anytime soon. 

On the other hand, the companies behind FTSE 250 dividend growth stocks IG Group (LSE: IGG) and Plus500 (LSE: PLUS) are highly profitable. As such, they may offer better total returns than UKOG shares over the long term. 

UKOG shares suffer

Plus and IG have both benefited from the significant increase in stock market volatility over the past few months. In its latest trading update, IG said that high levels of client activity produced trading revenue for its fiscal fourth quarter of £259m. This was nearly double last year’s figure. 

Plus has seen a similar boom in activity. The London-listed broker reported revenue of $316.6m in the three months to March. In the same period last year, the company’s revenue was just $53.9m. 

Looking at these results, it’s no surprise that shares in the financial services’ firms have outperformed the market over the past 12 months. UKOG shares, on the other hand, have fallen by around three quarters over the same time frame. 

The company’s dire need for cash is to blame. Unlike IG and Plus, which are raking in the cash, UKOG has relied on issuing new shares to fund its business activities for many years. Until the firm starts generating strong, recurring free cash flows, this is unlikely to change. That means further dilution could be on the cards, which might lead to further declines in the shares. 

Dividend champions

IG and Plus are highly cash generative. For example, in IG’s financial year to the end of May 2019, the group generated £170m of free cash from operations. This allowed management to announce a higher than average total dividend distribution, which cost the firm £171m. It also ended its last financial quarter with £357m of cash on a balance sheet, enough to support the company’s current dividend yield of 5.4% for at least two years. 

Meanwhile, in Plus’s financial year to the end of December 2019, the company generated £127m of cash from operations. This allowed it to return £100m in cash to investors with dividends and another £47m with share buybacks.

The group also has a large chunk of cash on its balance sheet. The cash balance stood at £287m at the end of the first quarter, enough to support the firm’s 5.7% dividend yield for nearly three years. 

These figures suggest that IG and Plus may be better investments for your portfolio that UKOG shares over the long run. Their cash generative nature, market-beating dividends, and strong balance sheets imply that the shares can produce strong total returns in the years ahead.

The post UKOG shares? I’d rather buy these FTSE 250 dividend growth stocks appeared first on The Motley Fool UK.

Could it now be the bargain of the decade?

Valuation

In the article, I noted UKOG had very little in the way of proved reserves. As such, I felt it was better valued by the prices at which its various licences had changed hands between knowledgeable trade parties.

I wrote: “UKOG has been a willing buyer, and numerous trade parties have been willing sellers, of assets totalling £30.5m, which equates to 0.55p a share.” Things have changed over 14 months, so let me begin by updating the table of valuations from the previous article.

(1), (2), (4), (6) No change to interests and valuations since my previous article.

(3) UKOG has increased its interest in Horse Hill to 85.635% from 46.735% after deals with three parties. Average prices paid put the total value of the asset at £46.3m (previously £46.2m). The value of UKOG’s interest has increased to £39.6m (previously £21.6m).

(5) UKOG has increased its interest in A24 (formerly Holmwood) to 67.5% from 40% after deals with two parties. The prices paid put the total value of the asset at £1.5m (previously £7.5m). The value of UKOG’s interest is £1m (previously £3m).

Totting up, I previously had a value of £30.5m on UKOG’s licence interests. With 5.57bn shares in issue, this equated to 0.55p a share. Today, its licence interests are £46.5m. The number of shares in issue stands at 7.42bn, and this equates to 0.63p a share. So, the valuation is very close to UKOG’s current 0.65p share price.

Bargain of the decade?

Aside from increasing its interests in the Horse Hill and A24 licences, UKOG has made operational progress. Notably, it’s continued extended testing of its Horse Hill-1 well at both the Portland and Kimmeridge levels. It’s also drilled a horizontal well — Horse Hill-2/2z  — designed to be a future production well from the Portland pool.

However, we’ve still had no updated Competent Persons Report (CPR) for the Portland or a first CPR for the Kimmeridge. As such, UKOG’s proved reserves (negligible) are little changed from 14 months ago.

With no reserve-based valuation available to me, and no reserve-based lending available to the company, the risk to shareholders of further dilution — and to my 0.63p a share valuation — is significant. Indeed, I view it as ominous that the company has recently sought (and gained) authority to issue up to 3bn new shares.

Due to the absence of CPRs and presence of high dilution risk, I’d want to see the share price at a significant discount to 0.63p. As such, I continue to view UKOG as a stock to avoid at the present time.

The post Could the UKOG share price now be the bargain of the decade? appeared first on The Motley Fool UK.

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.

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.

The post Why I think 2020 could be make-or-break for the UKOG share price appeared first on The Motley Fool UK.

For investors looking to put money into stable investments for long-term growth, UKOG is not the answer. It has a market capitalisation of £65m, there is no dividend yield and earnings per share are negative.

In September 2017, the UKOG share price hit a high of 8.7p and for a lucky few, a lot of money will have been made. The UKOG share price had been trading around 1.4p on December 20 2016, and is hovering at 0.9p today. Those who bought three years ago and still hold, will not have seen their investment grow — it will have declined by 37%. 

If you’d bought £1,000 worth of UKOG shares in December 2016, they would now be worth around £630.

Back in 2015, UKOG began testing for oil at its West Sussex site, called Horse Hill, near Gatwick airport. It’s rumoured to contain as much as 158m barrels of oil per square mile, which has understandably excited investors and excited interest in the venture.

In September, the company increased its stake in the field to a controlling 85.6% and flow testing was due to start imminently. However, earlier this month the firm was driven into an emergency £2m fundraising effort after its joint venture partners Doriemus and Alba Minerals ran out of money. An institutional investor fully funded this placing at 0.85p per share, but the UKOG share price fell 8% on the news.

Beware of AIM

UKOG has the misfortune of being both an oil and gas share and a penny share listed on AIM. Oil & Gas is a notoriously risky and volatile investment sector, while AIM is the ‘Wild West’ of the share-dealing arena and comes with its own additional risk.

Long-term investors should know the pitfalls of trading shares on AIM. The AIM index is much less heavily regulated than the major FTSE indices. As such it’s suspected to be home to relentless shorting, pumping and dumping, price manipulation through bulletin board ramping and other dodgy dealings.

Price of oil

Share prices in Oil & Gas hinge on the price of oil, but that price depends on more external influences, such as the trade war between the US and China, decisions made by OPEC, the risk of war or terrorism and the world economy at large. Therefore, although the quality of the company, its funding, management integrity and decision-making processes are all paramount, oil company share prices are constantly affected by many uncontrollable factors too.

I can see why investors are enticed by UKOG’s potential, many fortunes have been established in oil booms, but the risks should not be overlooked. Many more fortunes have been lost on AIM than won.

In mid-December, UKOG unveiled plans to install two exploration drills at privately owned sites at Arreton and Godshill on the Isle of Wight. This will require planning permission, but if granted, flow-testing should start in Autumn 2020. UKOG expects the sites would be in operation for 25 years and if successful, each site might generate £0.5bn during its lifetime. It’s very early days and there are many factors to consider, including environmental concerns.

The risks surrounding UKOG mean it doesn’t interest me. There is a lot of speculation, plus funding worries and external pressures to consider. I’ll continue to avoid the share.

The post This is how much £1k invested in UKOG shares 3 years ago would be worth now appeared first on The Motley Fool UK.

And considering the progress the business has made over the past few months, I reckon 2020 could finally be the year that UKOG’s shareholders are rewarded for their patience. 

Oil production 

Over the past 12 months, it has graduated from being an oil explorer to an oil producer. As my Foolish colleague Alan Oscroft recently noted, total test production was 77,200 barrels in mid-November, and it has risen further since. 

While these numbers do not tell us much about daily production volumes, in my opinion, this level of production is still a big deal. UKOG is producing oil and that means the company is also generating revenue. It might not be a huge revenue stream, but the business needs all of the money it can get while it pushes ahead with development plans. 

Cash flow 

This production has given it some much-needed cash flow. For the six months ended 31 March 2019, the company booked £1.6m of receipts from the sale of test volumes. This helped reduce the overall net cash outflow from investing activities from £5m for the six months ending March 2018 to £1.7m for the 2019 fiscal period.

Since these numbers were published, UKOG has continued to produce and sell oil. Therefore, I expect the company to reveal a big jump in cash flow figures when it reports its final results for the year ended 30 September 2019 next year.

And the company should report further progress in its interim figures for the period up to 31 March 2020. 

Financial stability 

The third and final reason why I think the UKOG share price could jump in 2020 is the company’s improving financial position. I’ve already covered the firm’s growing cash flows above, and it is also reducing debt. 

At the beginning of August, UKOG agreed a £5.5m financing package with Riverfront Global Opportunities PCC Limited and YA II PN Ltd with an interest rate of 0% and maturity date of 16 August 2021. Over the past few weeks, the lenders have been converting sections of the loan into shares, which has reduced the outstanding balance to £3.8m. 

Unfortunately, these conversions have diluted existing shareholders, but I think UKOG made the right decision by agreeing to borrow the money on these terms to fund its well development.

Now that cash is flowing into the firm’s bank accounts from oil production, it might be able to agree some funding from a more traditional lender, reducing the risk of further dilution. To do that, the company will first have to pay down the £3.8m liability, but that is already happening.

The bottom line

All in all, 2019 has been a transformational year for UKOG and 2020 could be another year of significant progress if the business manages to push ahead with its drilling and production plans for the year. 

The post 3 reasons why I’d buy the UKOG share price for 2020 appeared first on The Motley Fool UK.

I think my best stock tips of the year have all been sells, focused on steering clear of duff recovery prospects.

Crumbling bank

After Metro Bank (LSE: MTRO) shares crashed 30% in one day in January, where many saw a recovery possibility, I saw potential for disaster.

I’d like to have been wrong, but since then Metro Bank shares have lost a further 85% of their value. The bank had shocked us with the revelation that an accounting error had led to some loans, including some commercial mortgages, being assessed in too low a risk band, and that blunder was compounded by further failures.

It left Metro’s balance sheet a bit short, and a £350m cash call was needed to shore it up. And with memories of what happened the last time banks were a bit squeezed fresh in their minds, savers rushed to withdraw their cash.

Metro has probably got itself back on track now, and the departure of founder and chairman Vernon Hill has restored some confidence. But what convinces me to still avoid Metro Bank is the lack of competence implied by such a howling error.

Where’s the oil?

I examined perennial disappointment UK Oil & Gas (LSE: UKOG) in January too, deciding that it was a 50/50 gamble at the time – and I don’t do those. The biggest risk to me, which has played out through the year, was that the firm’s proven resources appear to be scant, despite the much-touted possible billion barrels or whatever that might lie beneath the Weald Basin.

Though the share price spiked up in late January, as with so many UKOG share rallies before, the trajectory soon turned back down again – and so far in 2019 the price is down 33%.

What’s the situation looking like now? Though we had another share price rally later in the year, I see little changing at UKOG. The company has acquired further interest in the Horse Hill site, is still producing trickles of hydrocarbons from its test wells, and we’ve still seen no sign of a Competent Person’s Report and have no clue about likely commercially viable oil and gas levels.

No commission?

My third “not with a bargepole” tip is Purplebricks (LSE: PURP), whose shares have lost 35% of their value since I wrote about the estate agent in January.

At the time, we were already looking at a fall of around 70% since Purplebricks shares hit an all-time high in 2017, after it became clear the firm had severely overstretched itself.

But the big problems for me were, and remain, that Purplebricks is still in net spend mode, is still set to record a loss this year, and I can’t even attempt to put a rational valuation on the shares. There’s a tiny profit forecast for the year to April 2021, which gives us a price-to-earnings ratio of 95 – but that’s a meaningless valuation at this stage, and confidence in it can at best be slim.

I still wouldn’t touch any of these three, at least not until I see profits and genuine recovery progress.

The post My best stock tips of 2019 appeared first on The Motley Fool UK.

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?

The post The UKOG share price is up 30% since August. Time to buy? appeared first on The Motley Fool UK.

That was at the beginning of October. Since then, the firm has continued to push ahead with its drilling and testing schedule. The company is currently concentrating on developing its Horse Hill-2z (HH-2z) Portland horizontal well. This is designed to tap into the Portland reservoir’s most oil-productive zone, or “sweet spot“, which was defined by the HH-2 pilot well’s successful coring and electric logging programmes. 

These operations were completed in the middle of October, and management is hoping to get the HH-2z well into production by year-end. 

Risky business

Drilling for oil is a risky business, and there’s never any guarantee everything will go to plan. However, UKOG’s operations at HH-2z are making progress. We should find out in the next week or two if the company has successfully managed to complete drilling at the prospect. The next stage will be the clean-up and flow testing. 

As I noted last time I covered the business, the results from HH-2z could be make-or-break for UKOG. Management claims this new prospect could be “capable of delivering flow rates significantly higher” than the HH-1 vertical Portland discovery well, which has been recorded as being able to produce just over 300 barrels of oil per day.

As my Foolish colleague Alan Oscroft recently noted, on October 9 the company reported production from the Horse Hill-1 test well had reached 41,800 barrels although, as he went on to add, this figure “tells us nothing whatsoever about any prospective daily production rate.” However, what does tell us is that UKOG is now producing oil and, perhaps more importantly, producing revenues. 

What’s next?

So what does this all mean for investors?  Well, the next few months are going to be critical for the UKOG share price. If the company does have success at its HH-2z well, then there’s a genuine chance this business could become a fully operational oil producer in 2020. On the other hand, if the new prospect fails to live up to expectations, then there will be more delays, costs, and dilution for shareholders ahead. 

With this being the case, I’m not a buyer of the stock at current levels. While I believe there could be a significant upside on offer for shareholders if the company does push through and strike black gold. But if it doesn’t, there’s no telling how far the stock could fall. I would rather sit on the sidelines and wait for news of further progress before initiating a position on this particular oiler.

The post Here’s what I’d do about the UKOG share price right now appeared first on The Motley Fool UK.