UK Oil & Gas [LON:UKOG] is doubling down on its bet on Turkey, with a view to quickly monetise projects in the country where the regulatory burden is lighter, as it continues to face challenges in its more domestic assets.
The group reported a widening of losses in the six months to the end of March to £1.02 million compared with £0.90 million in the same period last year. This is despite an increase in revenue from £0.08 million to £0.72 million, mainly driven by the start of production in its Horse Hill field.
In its interim results for the period, chief executive Stephen Sanderson reiterated his plans to continue expansion within Turkey and other new areas. One of the reasons for this is due to the increasing regulatory burden in the UK “meaning that assets cost more and take longer to monetise”.
“In contrast to the UK, Turkey offers the ability to rapidly monetise success in under a year, compared to three to five years in this country. Costs are significantly lower plus indigenous oil is given strategic importance by the Turkey government,” he added.
UKOG starts drilling at Basur-3 field in TurkeyEarlier this month UKOG announced that drilling had started at the Basur-3 field in Turkey, in which it holds a 50% stake. Sanderson, who is impressed with the speed of operations in Turkey, also said that the group is waiting to hear back on an application for three further exploration licences in the southeast of the country.
UKOG’s shares are up more than 46% year-to-date to 22p. Following a surge in April to 35p the share price has stabilised.
It is no question that UK Oil & Gas is in a difficult sector with traditional energy companies coming under fire from both sustainability-conscious shareholders and climate activists. UKOG’s Horse Hill site has been the subject of protests, although the company was able to obtain an injunction from The High Court on 30 June against five individuals to prohibit the trespass, obstruction and climbing on to vehicles at the site.
Controversy in Isle of Wight and Surrey
Another hurdle relates to UKOG’s plans for exploratory drilling on the Isle of Wight, which became a UNESCO Biosphere Reserve in 2019. The planning application is set to be considered by the Isle of Wight Council later in the summer and the environmental permit application has been submitted and is currently under review. However, since it was announced last year, there has been opposition to the plans, with some claiming that it could lead to the loss of Biosphere status.
Meanwhile, there is a public inquiry set to start on 27 July after planning permission of a site in Loxley/Dunsfold, Surrey was refused. It remains to be seen whether its geographic expansion and entry into renewables can offset some of the troubles UKOG been having in its home country.
Commenting on UKOG’s prospects, Angelos Damaskos, chief executive officer of Sector Investment Managers which invests in junior oil and gold exploration and production companies, said: “We believe the Horse Hill licence is probably the most prospective of their assets but are concerned of further opposition from NGOs and other regional authorities despite the recent injunction in favour of the company. Having said that, onshore hydrocarbon developments will likely continue to play a role in the UK’s energy balance for many years into the future so the company seems to be building a solid foundation for growth.”