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 currently owns 71.9% of Horse Hill Developments equating to an overall beneficial interest of 46.735% over the two Horse Hill licences.
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. It was announced this morning that the Portland stage of the extended well test is now complete with all operational objectives being successfully achieved. The well tests conducted on the Portaland along with resulting economic modelling indicates that the HH-1 Portland layer is commercially viable even at the lowest observed sustainable daily rate of 140 bopd and at oil prices below $60 per barrel. In addition Independent oil consultants Xodus Group’s (“Xodus”) analysis of flow and pressure data interprets that further HH-1 Portland vertical well optimisation could achieve a forecast sustainable initial 24/7 pumped rate of around 362 barrels of oil per day (“bopd”) when full scale long-term production commences, exceeding original estimates. This analysis is key as it establishes the absolute flow potential of the Portland reservoir for future production wells. A formal Horse Hill Developments Ltd (“HHDL”) declaration of Portland commerciality is expected shortly.
Following on from the completion of the successful Portland extended well test, preparation for testing to establish the commerciality of the Kimmeridge Limestone 3 (“KL3”) and KL4 oil pools underlying the Portland is now under way, further updates are expected as this testing progresses. With the extended well test of the Kimmeridge limestone’s about to commence there are certainly exciting times ahead. UKOG is the leading acreage holder across the Weald basin so if the Kimmeridge oil play is proven to be commercial in the upcoming well test then UKOG is set to benefit substantially. The shares have responded well to this morning’s announcement and are currently up 5% to 2.37p giving UKOG a market cap of £124 million. If the Kimmeridge well test proves to be successful a market cap at these levels may seem like a drop in the ocean when we consider the vast potential that the Kimmeridge provides. At the same time if the results prove to be negative the shares will be punished heavily, the shares were trading at 1.1p prior to the extended well test commencing in June so a return to those levels or lower can’t be ruled out, with the Portland exceeding expectations though investors will certainly be optimistic that the same can be repeated for the Kimmeridge zones.