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UK Oil & Gas death spiral conversion announced but this is misleading, numbers dont add up

By Tom Winnifrith, The Sheriff of AIM | Wednesday 6 December 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.

UK Oil & Gas (UKOG) has announced that another £500,000 of death spiral loan has been converted into shares, 14,159,092 of them. But hang on, this does not add up. UK Oil & Gas and its patsy Nomad WH Ireland (WHI) are not telling you something.

If you do the maths you will see that the conversion price is 3.5312p. The spread is now 3.2p-3.3p so the death spiral provider will be selling at a loss, right?  Or maybe, as some BBMs hope, that means they are LT holders and have faith in UK Oil & Gas. Wrong!

The conversion formula is 90% of the trailing 5 day VWAP. So had the conversion taken place last night it would have been at just 3.17p! And that can only mean that, in fact, the death spiral provider made the conversion last week and as soon as it converted it was legally entitled to sell the shares which, of course, it did and did so at a profit.

I am not bashing the DS provider at all. It has played this one by the book but it is the company that is at fault. Surely it should announce in today's RNS when the conversion took place? In fact, surely it should have announced this on the day it happened so letting folks know that 14,159,092 shares were about to hit the market?

Right now the conversion formula would see the next tranche convertible, if the provider wanted to, at 3p. Who is to say that it has not - as we speak - just done precisely that and is right now flogging another 16,666,667 shares as we speak knowing that UK Oil & Gas and WH Ireland will sit on the news for a few days until those shares are lobbed out for a quick profit?

This is wholly unsatisfactory. UK Oil & Gas must surely work with the poltroons at WH Ireland to ensure that an RNS goes out as soon as a conversion notice is received. Its consumate lack of transparency is yet another massive red flag.

The market cap of UK Oil & Gas, once £300 million, is still £116 million which for a company with limited cash and zero proven commercial reserves and a very poor run of form with the drill bit is far too high. That makes it a short on fundamentals but with £8.5 million of DS loan conversions still to come that overhang ( which under the VWAP formula can be cleared at any price and still leave the DS provider ahead) is starting to become a real issue.

Keep selling.

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