Interactive Investor

Gatwick drillers surge on new upgrade

5th June 2015 10:46

Lee Wild from interactive investor

Shares in the Gatwick oil drillers are trading again - as we said they would be yesterday - and the news is good. Oilfield services heavyweight Schlumberger reckons there's far more oil at their Horse Hill-1 well near Gatwick Airport than previously thought. Investors have scrambled to buy, but there's a warning here against getting too carried away.

According to Schlumberger's assessment of the petrophysics of Horse Hill-1, the overall oil in place (OIP) for the Jurassic section of the well is estimated at 271.4 million barrels of oil (mmbo) per square mile. Excluding the Upper Portland Sandstone oil discovery and it's 255.2 mmbo for the tight limestone and mudstone plays of the Kimmeridge, Oxford Clay and Lias.

That's 62% more than the 158 mmbo estimated by US-based Nutech in April. There's no word on the quantity of recoverable oil, but Nutech put the figure at 3-15% of oil in place.

"This independent technical viewpoint adds further weight to the potential significance of the HH-1 well and the potential of the Horse Hill licences," said Stephen Sanderson, chief executive at UK Oil & Gas, which has a net attributable interest of 20.358% in the PEDL137 licence in the Weald basin. The Horse Hill licences cover 55 square miles of the basin in southern England.

Shares in UKOG, Solo Oil, Stellar Resources, Doriemus, Evocutis and Alba Minerals, were suspended Thursday morning following a sharp rise in share prices Wednesday afternoon. The company admitted it had an announcement to make, but was clearly waiting on sign-offs from third-parties.

(click to enlarge)

Now it has them and share prices have surged. UKOG rocketed 54% to more than 4p within minutes of the opening bell, and Stellar Resources was up only a fraction less. Most of those gains have since evaporated, however, largely because those involved have still got to get the black stuff out of the ground. This is story has a long way to run.

"We caution that these assessments by Schlumberger today, and Nutech prior, refer to estimated OIP volumes based on petrophysical analysis and cannot and should not be interpreted as discovered reserves or resources," warns Brendan D'Souza, an analyst at WH Ireland.

"We have updated our risked Net Asset Valuation (NAV) to factor in Schlumberger's assessment. We estimate 25 mm bbls at discovered 2P level (5.2 mm bbls net to UKOG) across the entire Horse Hill asset. Our updated risked NAV based target price for UKOG now stands at 5p/ share and we reinstate our 'buy' rating."

Now, UKOG will carry out a localised resource assessment of licences PEDL 137 and PEDL 246, before conducting an overall assessment of the 5500 km2 Weald Basin, the final stage of the evaluation process.

"The results of the Rapid Resource Assessment (RRA) will assist UKOG in assessing the conventional and tight oil potential of its licences elsewhere in the Weald and provide decision making criteria for future exploration and appraisal drilling," says the firm.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.