The recent carnage in the stock market has hammered valuations of companies seemingly whether this was justified on fundamentals or not. Clearly, the fall in the price of Crude Oil has only added to the pain of the sector at what is already a difficult time.
By Zak Mir
Rising Production / Low Costs
However, United Oil and Gas is currently particularly interesting as their new Egyptian assets have been repeatedly increasing production and are soon set to be producing as much as 2,000 barrels oil equivalent per day (presently 1700 boepd).
With a new gas pipeline to one of their outlying fields nearing completion imminently, low cash operating costs of $6.5/ barrel and flexibility with their capital commitments United are in an enviable position as compared to other players in the sector who may not be fortunate to have assets with as robust economics.
Egypt / Jamaica
The current market capitalisation is only £7.7m and their portfolio compromises a lot more than their flagship Egyptian assets including their high-risk, high-reward Jamaican licence – prospective for multi-hundreds of millions of barrels.
A reasonable portion of their oil production is hedged at $60 per barrel with their BP offtake facility thus limiting downside as such is the recent huge decline in their share price now overdone? The remaining production seems very low cost.
Their BP Facility is based on a floor price of $60/bbl for c.6,600 bbls of crude oil production per month for the next thirty months, effectively hedging this portion of production while allowing United to benefit from market prices above $60 per barrel. Also to be noted is that once their gas pipeline has been completed that approximately 20-25% of production should be comprised of gas sales at fixed prices, again detaching production sales from the oil price and limited revenue downside.
Looking at the daily chart it can be seen that United shares have been left extremely oversold with a RSI reading of just 11 out of 100. Normally 30/100 is regarded as cheap, so we are looking at a rare overshoot on the downside. Even a rebound back to initial March support at 1.65p would be pleasing to bargain hunters from present levels.
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