UK Oil and Gas Plc (UKOG) - ATLANTIC ADVISORY - 01872 229 000 www.atlanticadvisory.co.uk - Investment Superstore
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JULY 2018
ATLANTIC ADVISORY
UK Oil and Gas Plc (UKOG)
01872 229 000
www.atlanticadvisory.co.uk
ATLANTIC ADVISORY www.atlanticadvisory.co.uk
UK Oil and Gas remains one of the owned by Conoco, is located 20km north west
most talked about and actively of Horse Hill.
traded stocks in the UK.
Production started in 1990 and continues to
this day. The wells initially produced around
A series of discoveries has led to 9,000 barrels of oil a month but that has since
speculation that the UKOG could tapered off to around 2,000.
be sitting on a vast oil resource just
south of London.
While Palmers Wood is considered small fry by
global standards, it at least confirms the area
Let’s take a closer look at the facts
has oil and it can be extracted. Today, there are
behind the hype. 13 producing sites in the Weald Basin, but none
are of a major scale.
A brief background However, the discovery at Horse Hill has put the
area well and truly back on the radar.
UKOG hasn’t been around very long,
having been formed in December 2013. Its
straightforward strategy is to build stakes in UK The Gatwick Gusher
oil and gas assets.
In late 2014, UKOG made a massive
To date, UKOG has built up portfolio breakthrough.
of 9 oil and gas assets. Two of these
are at production stage and therefore Preliminary results from drilling at Horse
generate cash for the company; four are Hill indicated a resource much bigger than
at appraisal stage and the remaining previously thought.
three are exploration licences.
UKOG had discovered potential oil not only in
Its core assets cover a vast acreage of 650 sq the Portland sandstone, but also in the vast
km in the Weald and Purbeck-Wight basins of layers of the Kimmeridge limestone deposits
Southern England. below.
The fact most of UKOG’s assets are onshore is The excitement really hit the roof in April 2015
a point of difference as most other UK energy when Nutech, a world leader at reservoir
plays are focused on offshore exploration – analysis, independently estimated the P50
which comes with additional costs, complexities (most likely) oil in place to be 158 million barrels
and risks. per square mile.
To date most of the attention has been given to The media went into a meltdown,
its first investment, Horse Hill, of which it has a nicknaming the find the ‘Gatwick
31.2% interest. Gusher’.
Horse Hill is located in a geological structure After extrapolating the numbers, the BBC
called the Weald Basin. Of more interest is that announced that there could be 100 billion
Horse Hill also happens to be only about 3km barrels of oil in the Weald Basin.
north of Gatwick Airport.
UKOG then hired Schlumberger to give a
The Weald has long been considered an second opinion. They came up with an even
area with hydrocarbon potential with oil bigger number – 271.4 million barrels oil in
and gas drilling taking place for over 100 place per square mile.
years.
Both Nutech and Schlumberger then calculated
But it was not until 1983 that a commercial find the potential oil in place for the entire Weald
of any significance was found. Palmers Wood, basin.
UK Oil and Gas Plc (UKOG) 01ATLANTIC ADVISORY www.atlanticadvisory.co.uk
UKOG has countered the voices of discontent
Nutech arrived at 9.245 billion barrels (P50) and by pointing out that the UK oil and gas industry
Schlumberger at 10.993 billion barrels (mean oil employs hundreds of thousands of people
in place). and contributes over £5 billion in tax revenues
annually to HM Treasury. On top of that, as
It should be stressed that these are oil-in-place North Sea reserves dwindle, energy security is
(OIP) estimates and are not to be confused with fast becoming a national issue.
Resources or Reserves, but the point being the
discovery looks massive. UKOG has plenty of time in which to
explore its licence areas.
On the road to recovery
The Oil & Gas Authority (OGA), the regulator of
Like all major discoveries, Horse Hill is only as the industry, has granted a four year extension
good as its recovery potential. to the exploration licences that cover Horse
Hill and nearby sites. This gives UKOG until the
UKOG fully admits it’s still in the early stages summer of 2021.
of estimating the overall recovery rates of its
discovery.
Back in the spotlight
For now, based on comparisons with
geologically similar fields in the US and Siberia, UKOG successfully raised £12.5 million of new
the best estimate is between 3-15% of the oil-in- capital in recent months. The money was raised
place. But that is fairly loose analysis, so should from institutional investors at only a small
not be taken too seriously. discount to the market price, which is a positive
sign.
However, flow testing from Horse Hill has so far
produced encouraging results. The first of three This alleviates financial pressure as the cash
zones to be flow tested at Horse Hill delivered with fund its projects over the next 18 months.
450 barrels of oil over a two-day period without
a pump – a flow rate the company believes The priority is to appraise and develop its core
“probably hasn’t happened onshore UK for projects, in particular Horse Hill. Further well
decades”. This rate was subsequently improved drilling and testing is expected to reveal an
to 1,688 barrels per day. update on the estimated oil reserves as well as
the flow rates, which were last tested in 2016.
The flow rate suggests that the Kimmeridge The flow rates are critical in determining the
limestone that sits below the Portland commercial viability of the discoveries.
sandstone is naturally fractured rock, allowing
the oil to move freely to the surface. The new work programme has already begun.
The aim is to prove the potential for commercial
If this is true, there would be no need production with a view to possibly kicking things
for fracking. off next year.
This is a critical point because there is an Investors will be hoping the new data moves
army of protestors from the environmental the company closer to production and in doing
movement, not to mention local residents, who so, will propel the shares higher.
will kick and scream at anything seen as ‘risky’.
Large scale onshore production will be difficult Summary
to execute no matter where its carried out
in the UK. If the area is populated, there is UK Oil & Gas is without a doubt one of the most
perceived risk to people. If the area is not exciting prospects in the UK energy sector.
populated, there is perceived risk to the
environment. And large parts of the Weald are The major discoveries at Horse Hill and
protected ‘Green Belt’. Broadford Bridge have uncovered a potentially
huge new resource that’s been buried in the
UK Oil and Gas Plc (UKOG) 02ATLANTIC ADVISORY www.atlanticadvisory.co.uk
Kimmeridge limestone of the Weald Basin.
About Atlantic Advisory
UKOG as the largest licence holder in the region
is perfectly positioned to reap the rewards from If you like our guides, why not check out our
what’s been called the “Kimmeridge limestone CFD advisory service.
play”.
As a client, we tell you specifically what we’re
There’s still much to be done in terms of recommending, where to take profits and how
determining the scale of recoverable oil but to manage your risk.
the results of previous flow testing at Horse
Hill have been promising. The results from the Good ideas can be undone by bad timing.
latest flow testing could be the next catalyst for
the shares. Having an advisor on your side, could help
make the difference.
Investors should note that since listing the
shares have had several huge upward spikes Please get in touch to see if it’s something that
only to gradually fall back down again. This is a you could benefit from.
typical pattern among small cap resource plays
as positive newsflow brings a short-lived surge Call us on 01872 229 000.
of attention.
For example, the shares reached around 9p
towards the end of 2017 but can now be bought
for less than 3p. Investors may wish to take
advantage of the dips and cash in on the spikes.
Longer term, we believe UKOG has the potential
to deliver significant upside for shareholders,
particularly as it moves closer towards proving
the commercial viability of its finds.
Strengths
• Two potentially significant oil discoveries
• Long-dated exploration licence
• Huge acreage yet to explore
• Could attract a heavyweight partner or
takeover
• Energy security threat will bolster political
support
• Low market cap relative to potential
Weaknesses
• Major onshore developments could be met
with resistance
• Longer-term funding situation unclear
• Recoverable oil still uncertain
Disclaimer
We have provided this information for your general guidance only and it should not be considered as
investment advice. Atlantic Advisory will not be liable for any loss or damage caused by a reader’s reliance on
information provided by us. We make no claims or representations as to the accuracy or completeness of any
material contained in our guides. Atlantic Advisory Ltd is Authorised and Regulated by the Financial Conduct
Authority (No 764562).
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