If there’s ever been a 50/50 oil stock, it has to be UK Oil & Gas (LSE: UKOG).
The major driving force behind the so-called Gatwick Gusher at Horse Hill in Surrey, it has seen its share price soar and crash as estimated prospects for its commercial hydrocarbon reserves have fluctuated wildly.
The share price spiked rapidly in summer 2017 when estimates of massive reserves had oil investors agog, but increasing concerns over the commercial viability of those potential reserves have led to a share price crash since then.
As I write, the shares are up a modest 33% over five years, compared to a 760% rise at their peak in September 2017. But where will the share price go in 2019?
Upwards?
In the bulls’ corner, we have my esteemed Fool colleague Rupert Hargreaves, who has pointed out that the big share price crash came as a result of a single disappointing update on progress at its Broadford Bridge-1 prospect in early 2018. That took the wind out of the sails, and no amount of positive updates have since been able to reverse the gloomy feeling.
But, as Rupert says, extended tests on the Horse Hill Portland oil field led the company to declare that asset as commercially viable. That has not been enough, so far, to reignite enthusiasm for UKOG shares, but the declining price of oil might be something to do with that.
Downwards?
In the opposite corner, my equally esteemed colleague G A Chester has suggested the UKOG share price might be worth as little as 0.55p (with today’s price standing at 1.3p). He points out that, though the company does have one asset with proven reserves, the rest are only rated as ‘contingent resources’ or ‘prospective resources’ — and as anyone who has followed the oil investment business will know, both of those categories are highly uncertain.
So what’s going to happen in the next 12 months? Funding, clearly, is going to be crucial, and the biggest fear currently is that UKOG will not have the cash it needs to get it to profitability as it is still very much in its cash-burn exploration phase.
Profitable?
There’s still the question of whether UKOG will get to profitability, and its recent record of buying up interests in licences that others seem very willing to sell does not strike me as a conservative approach to financial viability.
Having said that, if the firm can get to some sort of early production, that could have several positive effects. Firstly, some cash coming in could assuage the fears of those fearing a bust, and secondly it could encourage further rounds of fundraising.Â
It might also convince the sceptics who think Horse Hill is a dud.
My bottom line on UK Oil & Gas? For me it remains a 50/50 gamble, and I just don’t do those. Would you risk your future financial wellbeing on the toss of a coin? Me neither.