Oil investors have been excited since UK Oil & Gas (LSE: UKOG) and Solo Oil (LSE: SOLO) announced in April that there might be very impressive amounts of oil and gas beneath the Weald Basin covering several counties in the south of England, after first drilling at the Horse Hill-1 well near Gatwick.
Early indications led to optimistic suggestions that there could be 100 billion barrels or more down there, though the actual amount that could be recovered from the so-called Gatwick Gusher is as yet unknown — it’s been suggested that somewhere between 3% and 15% of the total oil in place might be recoverable, but that’s still a pretty significant amount.
Green light
The first stage in getting a clear picture is to do a flow test at Horse Hill, and both companies confirmed on Monday that they have the go-ahead to, well, go ahead with it.
The test will be examining both the shallower Portland sandstone within the prospect, and the deeper underlying Kimmeridge limestone layers beneath. It will be “conducted in the coming months as soon as practicable following the last remaining regulatory sign-offs from the Health and Safety Executive and Oil and Gas Authority“, and is likely to commence in early 2016.
If the find proves as big as hoped, both companies should do nicely — UK Oil & Gas has a 20% interest in the PEDL137 exploration licence covering the field, with Solo Oil holding 6.5%. And a good result at Horse Hill-1 could signal the start of numerous other test wells before production comes on line.
Should you buy?
So should you buy shares in these two companies? That’s a harder question, as even with a sizeable oil find, it’s still a risky investment at such an early stage in the process. And that risk seems to have been reflected in the companies’ share price movements on the day. By mid-afternoon, the UK Oil & Gas share price had dipped 6% to 1.5p while Solo Oil was down 2% to 0.33p — although the UK O&G price fall did come after a recent upwards spike.
Both companies are small — UK O&G has a market cap of approximately £32m with Solo even smaller at at £19m, and there will be a lot of capital expenditure needed before commercial quantities of the black stuff are flowing. And these are only two out of six AIM-listed companies with shared interests in the licence.
They’re very small companies, it’s AIM, the true prospects are really unknown, and there’s no knowing who’ll get the big rewards once development is fully capitalized — and those are all things that turn me off from this kind of investment. But good luck to the brave; I wish you well.