Oil offering is one to avoid

The Investment Column:
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The flotation of JKX Oil & Gas is not only a rare opportunity to invest in the old Soviet Union, but the first for some time in the oil and gas exploration sector. Neither attribute bodes well for the company's future success.

The group is raising pounds 40m in a placing and public offer at 190p a share, with 25 per cent of the issue being reserved for the public. The float price values the group at pounds 129m, which compares with a value of $306m (pounds 192m) put on its proven and probable reserves by independent consultants. Its credibility is backed by the presence of Robert Horton - who was ousted as chairman and chief executive of BP in 1992 - and David Boyd, former managing director of Goal Petroleum, one of the stock market-quoted exploration minnows that grew out of the 1980s North Sea boom.

Although Goal is still with us, the subsequent history of many of those small oil groups is not a happy one, with many investors ending up with burnt fingers. The risks with JKX are enhanced by its operations being centred on five joint ventures in three of the new states carved out of a part of the old Soviet Union.

In Crimea, where JKX is hoping to establish a processing plant to turn offshore gas into useful petrol, kerosene and diesel, separatist tendencies are currently quiescent. The Abkhazia uprising in Georgia served to keep other Western investors at bay in 1993, allowing JKX a clear run at licences in the west of Georgia. There, its hopes of developing a field have been heightened by news that Shell is ready to take a 40 per cent stake.

Projections are that production will reach 38,000 barrels of oil equivalent a day by 1999, but the risks suggest the shares are best avoided.