Is UK Oil & Gas Investments plc about to make investors £millions?

Could imminent news send shares of UK Oil & Gas Investments plc (LON:UKOG) and another oil stock soaring?

| 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.

The online financial discussion boards for UK Oil & Gas Investments (LSE: UKOG) are full of chatter as shareholders eagerly await flow test results from the company’s Broadford Bridge well, which is 27 km northeast of its so-called ‘Gatwick Gusher’ at Horse Hill.

Meanwhile, the chatroom buzz, which at one time surrounded Africa- and Asia-focused Ophir Energy (LSE: OPHR), is rather muted these days. A trading statement from the company this morning generated little excitement, as it contained no revelation on the finalisation of funding arrangements for its big Fortuna FLNG project in Equatorial Guinea.

Could the overdue news from both UKOG and Ophir send their shares soaring ? And which stock offers investors the better value?

Production

As I’m writing, shares of AIM-listed UKOG are dealing at 3.4p, valuing it at £124m. Two of the 10 licences in which it has an interest have fields in stable production. Last year, one produced 144 gross barrels of oil per day (bopd) and the other 47. UKOG’s interests are 10% and 5% respectively, and its revenue for the year was £151,000.

Ophir is listed on the main market, where it’s a member of the FTSE SmallCap index. Its shares are trading at 73.5p (3% down after this morning’s trading statement), giving it a market cap of £519m. Last year, Ophir generated $107m revenue on 10,800 boepd from two fields in Thailand and one in Indonesia.

News round the corner

Flow tests at Horse Hill, in which UKOG has a 34.4% interest, produced a total aggregate rate from three horizons of 1,688 bopd. However, as these were recorded over just 8.5, 7.5 and four hours, they don’t tell us too much. In this respect, I suspect the current flow tests at Broadford Bridge will be similarly unsatisfactory, because testing has already overrun by a month, due to problems.

Delays to Ophir’s negotiation of funding for its Fortuna FLNG project have been frustrating but I’m optimistic about the news round the corner here. If all goes to plan, we’d see first gas in 2020 with 16,000 boepd to Ophir.

Weighing up

There’s little solid by which to value UKOG at the moment. The most recent trade sale of a Horse Hill licence interest valued the acreage at £142,215 per km2. If we were to apply this to UKOG’s entire 67% interest in the total 928 km2 of the 10 licences — which would be extremely generous, as much of the area is far behind Horse Hill– we’d get a valuation of £88m versus the market cap of £124m.

Based on this valuation and the fact that the company is being funded by what is colloquially known as ‘death spiral financing’, I’m inclined to rate the stock a ‘sell’.

By contrast, Ophir has significant commercial production, total liquidity of $427m, net cash of $117m and 1bn boe of reserves and resources offering asymmetric upside. For these reasons, I’m inclined to rate this stock a ‘buy’.

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.

G A Chester 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

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

3 value shares for investors to consider buying in 2025

Some value shares blew the roof off during 2024, so here are three promising candidates for investors to consider next…

Read more »

Investing Articles

Can this takeover news give Aviva shares the boost we’ve been waiting for?

Aviva shares barely move as news of the agreed takeover of Direct Line emerges. Shareholders might not see it as…

Read more »

Investing Articles

2 cheap FTSE 250 growth shares to consider in 2025!

These FTSE 250 shares have excellent long-term investment potential, says Royston Wild. Here's why he thinks they might also be…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Has the 2024 Scottish Mortgage share price rise gone under the radar?

The Scottish Mortgage share price rise has meant a good year for the trust so far, but not as good…

Read more »

Investing Articles

Will the easyJet share price hit £10 in 2025?

easyJet has been trading well with rising earnings, which reflects in the elevated share price, but there may be more…

Read more »

Investing Articles

2 FTSE shares I won’t touch with a bargepole in 2025

The FTSE 100 and the FTSE 250 have some quality stocks. But there are others that Stephen Wright thinks he…

Read more »

Dividend Shares

How investing £15 a day could yield £3.4k in annual passive income

Jon Smith flags up how by accumulating regular modest amounts and investing in dividend shares, an investor can build passive…

Read more »

Investing Articles

Could this be the FTSE 100’s best bargain for 2025?

The FTSE 100 is full of cheap stocks but there’s one in particular that our writer believes has the potential…

Read more »