London’s Alternative Investment Market is littered with both success stories, like Gulf Keystone Petroleum (LSE:GKP), and disappointments, like Tower Resources (LSE:TRP).   It can often be fluid movements between success and disappointment as one dud well could be followed by a company making discovery.

A great swathe of London’s oil juniors are quite active in parts of the world most of us wouldn’t dream of taking our family on vacation, but there are a select few who have a combination of high impact drilling planned in politically stable neighbourhoods.

The United States has always been good hunting ground for energy companies, but in more recent years’ advances in horizontal drilling technology has opened up vast amounts of natural gas and shale oil to exploitation. The attractiveness of shale has been underlined by a string of large transactions in the US; the most recent being  Shell’s  US$4.7 billion move to increase its position in the Marcellus shale play in New York State and Eagle Ford shale play in Texas. If recent developments in shale gas have told us anything, it’s that there is still plenty of oil and gas to find in mature energy markets like the US.

Another example of this untapped potential is Wolverine Gas and Oil, a private company which discovered and developed the 1.2 billion Covenant Field – the largest onshore oil field in the US.  Wolverine discovered the field, near the border between Utah and Nevada just four years ago, and is now producing in the region of 6,500 barrels of oil per day (bopd).

When Wolverine made its discovery, it naturally set off a land grab in the Cordillera Thrust Belt. However, there is twist to the story. While the land prices did shoot up, geologically similar ground in parts of the nearby Hot Creek Valley in Nevada were not as quickly staked.  In the past, Hot Creek Valley has been the source of some 50 million barrels of oil production, but compared to many other large oil and gas basins in the United States, exploration has been hampered by the complex geology and the addition of a layer of volcanic rock.

Where the volcanic rock was laid oil seeps normally seen on the surface are covered up, hence impeding exploration. Even today, with the creation of 2D and 3D seismic, the combination of volcanic rock and thrust belts creates a lot of 'white noise', hampering the ability of seismic to see potential oil traps at depth.

Enter US Oil & Gas (USOP), a PLUS quoted microcap exploration junior which pegged 21 square kilometers  in the Hot Creek Valley in 2005 with the intention of proving the presence of oil.

USOP only listed on PLUS back in January this year at 5 pence, raising a tidy sum of £0.239 million (net), valuing the company at £1.3 million.  Since listing the company has reported on a range of studies - passive seismic survey, geochemical studies and magnetic/gravity survey – all designed to overcome previous technical hurdles in identifying potential oil traps at depth. Efforts to date appeared to have paid off confirming three high priority drill targets with a strong correlation from all the studies on where the oil might be.

This is where it gets tricky for interested investors. USOP has clearly made good progress in a short space of time, and all data to date suggests the company could strike lucky.  There is no shortage of oil discoveries in the same region, and it is certainly encouraging that the largest onshore oil discovery in the United States is in the same geological play.

On the flip side, the company clearly needs to raise a slug of cash to drill.  Equally important, as a one project company, the success or failure of the first well will have a massive impact on the share price. High risk, high reward indeed.