Shares in UK-based UK Oil & Gas Investments (LSE: UKOG) jumped by as much as 25% in early deals this morning after the company announced that it had made a significant oil discovery at its Broadford Bridge-1 exploration well in the PEDL234 Licence, Weald Basin, UK.
Today’s findings are the latest in what has been a string of good news for the company, which is currently conducting a drilling programme in the Weald Basin.
Management reported this morning that a recently drilled core section showed mobile light oil seeping from multiple sections of KL4 calcareous shales and limestones throughout. Further, wet gas readings maintained high levels throughout the coring, almost identical to that seen at the Horse Hill-1 oil discovery, 27 km to the northeast from Broadford Bridge-1. According to the firm, this development, coupled with other findings at Horse Hill-1 means there’s a possibility that an oil reservoir 600 to 700 ft thick has been discovered.
Another recent production test at Horse Hill yielded nearly 1,700 barrels of oil per day, marking it among the very best exploration well results ever in Britain’s onshore oil industry.
High risk, high reward
Of course, as with all early-stage oil and gas development, there is much to be done before UK Oil & Gas can begin production from this prospect. And no matter how positive the well results might seem, there are still plenty of risks ahead.
Still, recent updates from UK Oil & Gas show that the company is operating its current drilling programme on time and on budget, which gives me confidence in the company’s outlook. A lack of fiscal discipline is generally the reason why small businesses tend to fail.
It’s clear that this company has tremendous potential, but as with all small-cap oil companies, there’s no guarantee the business will ever reach its full potential.
Can’t keep up with demand
Shares in Africa-focused business Victoria Oil & Gas (LSE: VOG) also ticked higher this morning, but have since given back most of their gains after the company announced that it had extended its gas supply agreement with ENEO Cameroon S.A.
According to today’s press release, the extension will allow Victoria to “optimise all technical and financial elements of a long-term gas supply arrangement aimed at increasing the current contractual power supply of 50MW to beyond 100MW.” A fixed off-take price of $7.50/mmbtu has been agreed between parties. This agreement should help support Victoria’s rapid growth rate. The company believes there’s demand in Douala region in Cameroon for more than 150mmscf/d per day of gas, more than it can supply, so management is trying to agree on licenses with third parties.
City analysts are expecting Victoria to report its first sustainable profit this year, with earnings per share of 4.6p expected. Analysts have pencilled-in a similar figure for 2018 although as management takes advantage of the huge untapped market for gas within Cameroon, I wouldn’t rule out positive earnings revisions. Nonetheless, like UK Oil and Gas, as a small-cap energy company, Victoria might not be suitable for all investors due to its size and relatively young age.