UK Oil and Gas PLC (UKOG) is an AIM listed oil and gas exploration company with a portfolio of 8 direct and indirect UK onshore exploration, appraisal, development and production assets. These assets cover 928 sq km in and around the Weald basin in Southern England. One of the companies most exciting near term prospects is it’s share of the Horse Hill licences PEDL137 and PEDL246. Horse Hill is a joint venture consisting of Horse Hill Developments (HHDL) and Magellan Petroleum, HHDL operates and owns 65% of the licence and the remaining 35% is owned by Magellan Petroleum. UKOG announced earlier today that it has entered into sale and purchase agreements with Gunsynd PLC and Primorus Investments PLC to acquire their combined 7% shareholding in Horse Hill Developments Ltd. Following the acquisition UKOG will hold a 56.9% stake in HHDL, equating to a 36.985% beneficial interest in the Horse Hill licenses, giving UKOG the biggest single interest in the licences overall.
Horse Hill made headlines back in 2016 when three short term flow tests delivered commercially viable stabalised flow rates of 323, 464 and 901 bopd from the Portland, Kimmeridge 3 and Kimmeridge 4 oil pools respectively. The Portland layer of the Horse Hill licence is estimated to contain 32 mmbbl of oil in Place (OIP) with gross recoverable 2C Contingent resources estimated to be 1.5mmbbl, but the real excitement comes from the deeper Kimmeridge layers where it’s estimated there are 9,965 mmbbl of oil in Place (OIP) and two limestone layers within the zone provide 373ft of potential oil pay. With this much oil in place and the positive flow test results to date it’s easy to see why excitement is building around Horse Hill. HHDL is currently conducting an extended well test with the primary objective of establishing the commercial viability of the Kimmeridge Limestone 3 & 4 oil pools. Work carried out so far for the extended test has been on the higher Portland discovery and the results to date have been very positive, with stable daily flow rates coming in at 401 barrels of oil per day exceeding the 2016 flow test result of 323 barrels of oil per day. HHDL plans to conduct further short restricted flow and pressure build up tests on the Portland before moving onto the primary target of the deeper Kimmeridge layers.
The important takeaway from today’s announcement is the fact that UKOG is now the majority shareholder of HHDL and they now have the largest holding across the whole licence. This is important because it means UKOG now effectively has control over Horse Hill and should have the final say in all decisions going forward, allowing them to keep the focus on the deeper Kimmeridge layers rather than the Portland. With the shares of UKOG currently hovering around 1.9p the company has a market cap of £102 million, whilst that does seem a lot for an oil explorer at this stage it’s important to consider the potential that lies across UKOG’s assets. UKOG is the leading acreage holder across the Weald basin so if the Kimmeridge oil play is proven to be commercial then UKOG is set to benefit the most and shareholders will most likely be rewarded handsomely.
With the upcoming extended well test of the Kimmeridge zones at Horse Hill there are certainly exciting times ahead for UKOG but one thing to bear in mind with oil explorers such as UKOG is they are extremely high risk, there is no guarantee of success and negative results will likely produce significant losses for shareholders, whatever the results the shares will certainly be volatile of the coming months.