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UK Oil & Gas - as it prepares for placing more ramptastic news from Horse Hill: DO THE MATH MORONS!

By Tom Winnifrith | Friday 8 September 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Remember Horse Hill? That was the original breakthrough site for UK Oil & Gas (UKOG). It was the Gatwick Gusher. It was the site that lyin' Steve Sanderson claimed contained a billion barrels of oil. Then he said he never claimed that. Then a video emerged of him saying that. So is that one big lie or two? Anyhow as UK Oil & Gas tries to ramp its shares ahead of a placing we have more ramptastic news from the Hill.

There is an update on planning applications. The Environment Agency is on side and Surrey County Council will decide on October 18th whether to allow an extension of operations. I would expect that to be a formality. That is not the issue.

Assuming the green light is given UK Oil & Gas will not move straight into production but into flow testing to establish in a meaningful way what sort of output may be achieved. So far we have had two zones tested and the results are:

"As previously reported in February and March 2016, two naturally-fractured limestone members within the Kimmeridge section, known as KL3 and KL4, flowed dry, 40-degree API oil, at an aggregate stabilised natural flow rate of 1,365 barrels per day ("bopd") with no clear indication of depletion. The overlying Portland flowed dry, 35-degree API gravity oil at a stable pumped rate of 323 bopd. The Portland oil was produced at the rod-pump's maximum achievable rate and thus flow was constrained by the pump's mechanical capacity."

Well maybe the Portland Oil might flow at increased rates with greater pump capacity. As for the kimmeridge section there was "no clear indication of depletion" after a few days testing but depletion there will be and it will be very meaningful after months and years. So Horse Hill ever produces it might just start at 2,000 bopd but will fall sharply after months and years.

Maybe the operators will clear $15 a barrel free cash so that is peak free cashflow of $30,000 a day or $210,000 a week or $10.5 million a year. But that is peak, it will fall sharply. In Sterling terms the UK Oil & Gas share of that is c£2.4 million - value the asset on 5 times peak cashflow (which is very generous indeed) and you get a value to UK Oil & Gas of £12 million.

£12 million is the most generous way you can value UK Oil & as's slug of Horse HilI. A prudent man would shoot for a far lower number. At c9p UK Oil & Gas, run by proven liar Steve Sanderson, is capitalised at c£340 million. Anyone buying at this price has lost their marbles and it is no wonder that UK Oil & Gas is so keen to do a placing.

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