Thursday, September 28th 2023

UK Oil & Gas –

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UK Oil and Gas share price volatility shows the importance of treading carefully!

Fresh from increasing its stake in Surrey’s controversial ‘Gatwick Gusher’ project to nearly 47%, this week has got off to a busy start for UK Oil & Gas. On Monday, the firm rose sharply on news towards 2.45p before easing later in the session, as the company announced that it has finished the final flow test sequence at the Horse Hill-1 well, which covers 143km2 to the north of Gatwick Airport in Surrey’s Weald Basin.

After analysing the data, oil consultant Xodus said vertical well optimisation at the site could achieve a forecast sustainable initial 24/7 pumped rate of around 362bopd when full-scale, long-term production begins. According to UKOG, this exceeds original estimates and establishes the absolute flow potential of the Portland reservoir for future production wells.

The firm said plans are now being formulated to drill either the HH-1z sidetrack or HH-2 new drill as a horizontal Portland appraisal well, with a targeted daily production rate of 720-1,080bopd. It has also begun work to establish the commerciality of the unconventional Kimmeridge Limestone underlying the Portland.

Finally, the firm said its economic modelling indicated that HH-1 Portland will be commercial at production rates of 140bopd and oil prices below $60/bbl. In line with this, Horse Hill Developments, 65% site owner and developer, will submit a planning application for long-term production to Surrey County Council shortly, ahead of slated full-scale production in 2019.

Stephen Sanderson, UKOG’s chief executive, said: ‘We are delighted that the HH-1 re-perforation and optimisation programme has resulted in the forecast sustainable Portland production rate of 362 bopd, which significantly exceeds our initial test programme expectations. This high rate, together with our economic modelling, strongly indicates that the HH-1 Portland vertical well is commercially viable and robustly economic at the lowest observed sustainable test rates and the predicted future sustainable production rates.’

Although the update appears to indicate progress, it is unlikely to do much to change the market’s perception of UKOG, which is notoriously split very much down the middle. Just look up the firm on Twitter for more evidence of this.

Indeed, just a day after the update, UKOG’s shares fell 9%, or 0.22p, to 2.18p erasing the previous day’s gains and putting the company back to where it began the week. The drop came despite the business reporting that planning permission for its 100% owned and operated B-1 and 1z Kimmeridge oil discovery, located in West Sussex, had been extended by 18 months.

The fact remains that for every investor who believes that Horse Hill contains 100 billion barrels of oil there will be another who views it as a dud that will never offer the potential for economic recovery. Given the genuine risk of sentiment-driven price swings, it may be worth seriously weighing up the opinions of both the ‘for’ and ‘against’ camps before visiting UKOG as a potential investment opportunity.

You can see Zak Mir interview Stephen Sanderson Chairman of UKOG here

The author does not own shares nor remunerated (correction)