Friday, September 22nd 2023

Gatwick Gusher Update!

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Where next for the Gatwick Gusher?

The last week has seen the Surrey-based Horse Hill oil project – often referred to as the ‘Gatwick Gusher’ – enjoy considerable progress. So, what could this mean for the firms involved?

Firstly, on 11th September, the field’s operator Horse Hill Developments (HHDL) was granted full planning consent for long-term oil production from Surrey Country Council’s Planning and Regulatory Committee. The development gives the firm permission to produce oil over 25 years at up to 3,500 bopd from six wells across its two target oil pools – Portland and Kimmeridge. The allowance covers Horse Hill’s existing HH-1 well and its forthcoming HH-2/2z horizontal well while also giving HHDL permission to drill one water reinjection well to help maximise oil recovery.

Then, a day later, it was revealed that HHDL has completed final site works to accommodate the arrival of a rig to drill HH-2/2z. The apparatus is scheduled to arrive later in September, with a ‘vertical pilot hole’ expected to complete within 30 days ahead of the immediate drilling of the horizontal well section. Alongside this news, UK Oil & Gas (UKOG) – HHDL’s largest backer – said that total oil production from Kimmeridge and Portland has now hit 66,127 bbls. Arrangements have also been made to enable Kimmeridge production to continue throughout the Horse Hill drilling campaign.

Long-time Coming

To recap, Horse Hill has been the source of much controversy and delay throughout its gradual development in recent years. Central to this has been scepticism around claims that ‘billion of barrels’ of oil is locked in the ground at the site. Detractors argue that much of this will not be available for recovery, while others point to recent flow test rates that have shown that the field can produce at a rate of more than 1,300bopd – ahead of expectations.

Regardless of where you sit here, the two updates released over the last week objectively hold some significance – at least when put in the context of publicly-made claims by firms involved in the Gatwick Gusher. Firstly, in a statement made last week, UKOG said that the granting of long-term oil production consent means that immediate oil production will no longer be limited to existing extended well test planning consents.

According to the firm, it also enables the transfer of current and future assigned recoverable volumes into the more attractive category of reserves. In theory, this should help to facilitate the potential use of debt-based funding for future development at Horse Hill. Finally, UKOG said the consent would enable HHDL to finalise its field development plan and submit it to the UK Oil and Gas Authority.

Elsewhere, the progress made towards drilling HH-2/2z bodes well for firms involved – if public predictions are to be believed. According to UKOG’s statement on 11 September, the well has been ‘designed to produce at rates potentially of up to 2-3 times the rate of the vertical HH-1 well’. Given the use of modal verbs here, the reality of achieving such lofty production volumes remains to be seen.

Positive Reaction

Regardless of any potential concerns, the response to the developments on the share prices of involved companies was positive. Most notably, UKOG – whose ‘hand in glove’ acquisition of an extra 35pc in Horse Hill last month takes its total stake in the project to c.85.6pc – has risen from 1p to 1.2p since the beginning of August. Elsewhere, Alba Minerals – which owns 11.765pc of Horse Hill – rose from 0.16p to 0.21p last week following the updates. It has since settled at 0.19p.

For those who really believe in Horse Hill’s potential, the clearing of licencing constraints – described by UKOG as ‘the most significant event […] since the HH-1 oil discovery’ could bode well. If flow rates at HH-2/2z can reach their stated potential – that’s a big IF as it stands – then it could provide further fuel to the share prices of involved firms ahead of a more long-term drilling programme.

As a caveat, it is worth noting that – as is now custom – recent developments at Horse Hill have been accompanied by a degree of animosity among Surrey locals. Indeed, in an article titled ‘Residents question whether UKOG is trying to dupe council planners over Horse Hill drilling plans’, industry publication outlines local outrage at alleged changes made to HHDL’s drilling plans. Whether or not these complaints, and the presumed retaliation that will follow, will have any bearing on HHDL’s progress remains to be seen. If they do, then it could lead to yet more delays – it is impossible to tell at present, but it is a risk nonetheless.

Beyond the immediate Horse Hill partners, last week’s news could also bode well for firms with interests in the Holmwood exploration licence which lies immediately to the west of Horse Hill. Holmwood, which is also operated and part-owned by UKOG (40pc with a conditional agreement in place to buy a further 7.5pc from Union Jack Oil, contains unrisked gross mean prospective resources of 5.6MMbbls.

With last week’s regulatory and drilling progress having the potential to somewhat de-risk the early-stage Holmwood, other stakeholders in the licence such as Europa O&G (20pc) and Egdon Resources (18.4pc) enjoyed a moderate spike in their share prices.

As mentioned, many investors have had their patience tested one too many times at Horse Hill – regardless of recent progress. It will likely take a significant development at the asset to turn their heads, as it were. Those who remain faithful will view the latest events as a promising milestone on the way to further progress.

The Role of the Oil and Gas Authority in the UK

The author was remunerated but holds no shares in the company



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