The biggest risk to your money in any AIM listed stock is their inability to raise finance.
Whatever company you invest in will need to meet its financial responsibilities, choose the right assets and to develop them to revenue generation.
The Alternative Investment Market is and has always been a high risk, rarely high reward platform that a substantial amount of people lose money. Like a one armed bandit, you may get three cherries but will end up putting your winnings back in and walking away empty handed. Only the occasional jackpot is ever realised.
In the oil and gas sector, the result of the drill is the jackpot and this is always fraught with risk.
When a company spuds a well, they are relying on the experience of geologists for the location and their operator’s drilling skill and knowledge for a good result. If that well doesn’t come in, it’s usually a case of drilling another one and that costs money. And so another fundraise is instigated.
This can go on for years and in the meantime, there are operational costs, there are staff costs, AIM listing costs, audits, office, director salaries, PR, analysts, geologists, broker costs, the list goes on.
Getting to a stage where a company in this sector can cover these costs from revenues is rare and in reality, an exceptional achievement.
So why should investors look at Union Jack?
- The company is wholly self sufficient. They have no need to go to the market so shareholders have no fear of waking up to a fundraising RNS. This is a major reason to invest for the longer term.
- Union Jack is turning a strong revenue that is allowing them to safely enter the United States and not only buy, for cash, revenue generating mineral royalties but also fund their first well in a prolific oil bearing area in Oklahoma. That revenue covers all the costs of their share of maintaining the Wressle well, the Keddington well, it covers their cost of the looming West Newton development and other licence costs.
- There have been a couple of rarely heard of from an AIM oiler dividends. I have no doubt there will be more, accompanied by additional share buy backs.
- Plans going forward to drill what has been described as the biggest gas discovery in over half a century, most planning consents in place and nearby facilities to take both oil and gas.
- The entry into the US in a joint venture with a successful and operationally experienced team, the first well, the Andrews-1 offering a 75% chance of success with a short term drill to production period.
- This and the drilling of the Penistone Flags could easily double present revenues. £2,000,000 plus per month?
- A company that isn’t announcing options and bonus’s every year. From what I gather the management don’t even have a pension scheme in place and it certainly isn’t even paying for Bentley’s all round!!!
So, it’s my feeling that at 17/18p, it is a huge opportunity with what is to come this year. It feels the opposite scenario is coming here, low risk, high reward.
