Following Royal Dutch Shell plc’s RDS.A $70 billion buyout of BG Group earlier this week, the UK energy sector was again abuzz with news that a tiny exploration company has made a huge oil find at its Horse Hill prospect in the south of England’s Weald Basin, probably the largest in the last 30 years.
A ‘World Class’ Find
Based on data from a well drilled last year, the massive discovery under the green fields surrounding the Gatwick Airport is said to hold up to 100 billion barrels of oil, which is believed to be worth more than £300 billion. For comparison purposes, the North Sea has produced just around 45 billion barrels in its 40 years of history.
The announcement sent shares of UK Oil & Gas Investments (‘UKOG’) – the small exploration-focused company behind the find – up 200% at one point in London, with the scrip eventually closing up 169%. The oil minnow has a 20.36% interest within the Horse Hill licenses. Smaller partners like Solo Oil plc and Stellar Resources plc also witnessed frantic trading on Thursday after the revelation.
Analysts Skeptical Over the Mega Find
Analysts, though, have taken UKOG’s huge claims with more than a grain of salt. Firstly, the commercial value of the well still needs to be validated by an independent third party. Secondly, by the company’s own admission, only a small fraction (3-15%) of the oil in the ground could be recovered.
Moreover, there is a feeling that oil from the well may be too costly to churn out, especially with the commodity in a freefall of late. Finally, any drilling proposal would need environmental clearance, which is going to be difficult.
Potential Still Significant
Even at the low end of estimates, a sizeable amount of crude might be recovered from the ground, which may amount to about 10-30% of UK’s total demand by 2030. But more importantly, UKOG says that oil can be extracted through conventional techniques without the requirement of the controversial fracking technology.
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