A few minutes before I wrote this, former UK Oil & Gas Investments (LSE: UKOG) director David Lenigas took to Twitter to declare “great news from Schlumberger this morning”. So what’s the good news?
According to UKOG, oil services giant Schlumberger has calculated a mean oil in place figure of 10,993m barrels for the PEDL137 and PEDL246 Horse Hill licences, in the south east of England. UKOG has a 20% interest in these licences.
This is consistent with and slightly higher than the June report from consultants Nutech, who concluded that mean oil in place in the Horse Hill licence area was 9,245m barrels.
These figures refer to the tight oil in the Kimmeridge, Oxford and Lias formations which lie below the separate Portlandian discovery, which has a mean oil in place estimate of 21m barrels.
However, it’s important to remember the oil in place figures are not an indication of how much oil can be commercially recovered. Even if this discovery is commercially viable, the amount of recoverable oil will be much lower than the oil in place.
What’s changed?
Today’s report doesn’t really contain any new information. The data used by Schlumberger appears to be pretty much the same as that used by Nutech, earlier this year.
According to UKOG, Nutech used “analyses of the HH-1 and Collendean Farm-1 wells and the 8 closest wells to the licences”.
Today’s update says that Schlumberger used “electric logs [acquired] during the drilling of HH-1” and “incorporates the analysis of a further nine wells located within and beyond the Licence Area”.
It’s not clear to me why UKOG has paid for the same analysis to be done twice.
Awaiting flow test
Today’s report does not provide any new information about the likelihood of a successful oil development in the Horse Hill licence areas.
The first big test of UKOG’s assets will hopefully come later this year, when the HH-1 well will be flow tested, subject to approval by the Environment Agency.
If the test goes ahead, I expect the modest Portlandian discovery to flow without too many problems. The big question is whether tight oil will flow from the deeper Jurassic limestone layers without fracking.
Until we know more, my view is that UKOG remains too speculative to be an attractive buy.
Solo Oil production update
Another former David Lenigas firm, Solo Oil (LSE: SOLO), also updated the markets today.
Solo has a 6.5% stake in the Horse Hill licences. In a statement today, Solo chairman Neil Ritson appeared to agree with my view on the Schlumberger report saying that it “does not materially change the estimates previously released”.
However, the bigger news for Solo is perhaps the imminent start of gas production from the Kiliwani North field in Tanzania, in which Solo has a 6.5% stake. Solo said today that the gas sales agreement was near completion, subject to the operator finalising various commercial details.
Solo also announced today that further appraisal drilling is being planned for 2016 on the Ntorya gas discovery in the Ruvuma PSA area in Tanzania. The Ntorya-1 well has best estimate contingent resources of 70 billion cubic feet of gas, so is potentially significant.
Solo’s proven assets and near-term production potential make the firm a more attractive buy than UKOG, in my view.