United Oil & Gas - potential upside far outweighs the risks considers Gary Newman...

CAR CRASH: Chill Brands audited accounts finally out, what skeletons & horrors emerge. Read HERE

Sometimes I look at a company and think its shares are just too cheap at the market cap and is pretty much being priced to fail, yet in some cases there certainly doesn’t appear to be anything fundamentally wrong that suggests that to be the situation. That very much strikes me as the case with United Oil & Gas (UOG), and although it isn’t one that I’ve been all that interested in before, the current market cap of just £16 million - at 2.55p -seems far too low to me when you consider that oil is trading at around the $80 level and gas prices are going mental. It seems to be completely unloved by the market at the moment, and although it has had some problems with production at its Egyptian operations, with higher than expected levels of water cut, it now seems to have got that under control for the time being.

Simec Atlantis Energy - the beginning of the last Act. Read from Peter Brailey HERE

Previous guidance for the year at the Abu Sennan onshore licence - United holds 22% and it is operated by Kuwait Energy Egypt, which holds the rest - had been in the 2,500-2,700boepd range, but at the start of this month that was revised downwards by a significant amount to 2,100-2,300boepd. I can see why that might have spooked investors, given the rapid decline in performance compared to previous expectations and given that it is in Egypt and looking at decline rates of other similar operations. But I think at this stage the market is over-reacting to that and continuing to value the company too cheaply before it has even given it a chance to stabilise or turn things around, as even at the lower guidance level that is still a significant amount of production for a company of this size. The interims for H1 2021 have just been released and show that the company generated revenue of $10 million at an average realised oil price of $63/barrel versus a cash operating cost of $4.61/boe – although we do of course also have to consider the Capex intensity of the operations in terms of maintaining production via drilling activity, and that totalled $4.3 million for the six months, with $1.1 million going on workovers and facility upgrades, and most of the rest being spent on the ASH-3 and AJ-8 production wells, plus the ASD-1X exploration drill. That resulted in the company recording a net profit of $2 million. At the end of June it only had $2 million left in cash, but since then has signed sale and purchase agreements for both its Italian and UK central North Sea licences – the North Sea one will see an initial payment of $2.8 million, with potentially a further $1.6 million uplift if development of that block is approved; the Italian assets will be sold for €2.165 million which will be paid on completion, and with a deposit of €108,000 already paid. The company does have some debt which came about as a result of the purchase of Abu Sennan from Rockhopper (RKH) via a commodity swap arrangement, but it has been paying that back as expected over the 30 month term. Currently its planned operations are being funded from its operations, and with rising oil and gas prices I’ve no reason to believe that won’t continue to be the case.

Read HERE: Vast Resources - The Oxymorons at AIM Regulation vs Fleet Street Legend Brian Basham (again)

Its reserves also appear to support that the share price is too low, with 2P of 3.7mmboe, and a further 7.6mmnoe of 3P that can potentially be developed and produced. There is also additional upside from its exploration activities at Abu Sennan, with a further 12.7mmboe of prospective resources. So not only do I see enough booked reserves currently being produced from to get my interest, but also plenty of potential to add to those via further planned development and exploration work. In terms of that exploration, the company has just completed the ASX-1X exploration well, which encountered 10m of net pay across a number of zones and will now be completed and tested, and if that is successful, United will apply for a licence to develop it. Of course there is a risk that it may not prove to be commercial when it is tested, but given the current share price it certainly doesn’t appear that it is being priced in anyway.

Same old, same old ‘not cheap but quality’ at Next plc says Chris Bailey HERE

Further drilling and workover activity is planned this year via two more wells, and the partners are also looking ahead to 2022 and work which will ensure that production is at least maintained or increased, with that likely to come from the drilling of four wells. The risk with these types of companies, as I’ve seen with a number of others in the past, is that they are never able to generate much in the way of cash reserves to potentially distribute back to shareholders in the future via dividends, and that any money they make has to be poured back into drilling in order to maintain production levels. But in this case - and given that it is being valued at less than many explorers with little or no prospect of ever producing anything! - I think that it has potential, and even more so given oil and gas prices now. It is currently repaying the money that it borrowed at a fairly significant rate compared to the market cap, whilst still being able to fund its operational activity from its profits. Plus, should soon see an injection of cash from the two asset sales. On the basis of all that, I’m happy to call it as a buy and in my opinion the potential upside far outweighs the risks.

Starting to string up the red hot chillies at the Welsh Hovel. From TomWinnifrith.com HERE

Filed under: United Oil & Gas, Chill Brands, Simec Atlantis Energy, Vast Resources, Next plc

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