Last week, the share price of a little-known Aim stock, UK Oil & Gas Investments (UKOG), went into orbit after it announced that the Horse Hill prospect, in which it holds a 20.4 per cent interest, could contain billions of barrels of oil, along with substantial gas volumes. Early geological surveys indicated that Horse Hill could possibly contain around 4.4bn barrels, but subsequent petro-physical and reservoir analysis by Houston-based NUTECH now point to a potentially even more vast resource in licences covering 55 square miles of the Weald Basin near Gatwick in the south of England.
Following the initial feeding frenzy, UKOG, which is controlled by serial oil and gas entrepreneur David Lenigas, has sought to qualify the findings from NUTECH; pointing out that the estimated hydrocarbon volumes in place (OIP) should not be classified "as either contingent or prospective resources or reserves". Management had stated that 50bn-100bn barrels of oil could be in place, 3-15 per cent of which is extractible, but, short of extensive drill-work, it is unrealistic to hang your hat simply on the reservoir characteristics.
NUTECH analysts view the geological sequence of Horse Hill as analogous to the productive sections of the Bakken and Permian Basin shale formations in the US. But critics of the initial findings, most notably Matthew Jurecky, GlobalData's head of oil and gas research, believe that the upper tier estimates are predicated on a consistent geology across the formation - far from a given at this early stage. With oil prices in the doldrums, and domestic cash costs likely to be at the upper end of the industry curve, the volume of commercially viable production must also be brought into question. And that says nothing of the tsunami of planning obstacles lying in wait for Mr Lenigas & Co from the not-so-gentle denizens of Middle England. Assuming Natalie Bennett and the Green Party don't sweep into power next month, political support is probably assured. But gaining friends in Westminster may be considerably more straightforward than gaining any in the Home Counties.
Further detailed analysis is to be carried out by NUTECH, UKOG and fellow Aim-constituent Solo Oil (SOLO), which holds a 6 per cent interest in Horse Hill. On completion, the partners will have a clearer picture of the OIP, but the economics of any subsequent project will be dependent on the vagaries of crude oil prices.
