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Horse Hill’s new oil-in-place estimates even bigger than the last

Published: 16:09 05 Jun 2015 BST

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More work is need before recoverable resources or reserves can be defined

--UPDATE adds management comments, share price  and background--

Schlumberger has presented a second opinion of the recent eyebrow-raising estimates relating to the Horse Hill oil discoveries, and the blue-chip contractor has weighed in with an even bigger number.

A report in April, by US consultancy group NUTECH, claimed the tight reservoirs that form Horse Hill’s Kimmeridge play could contain 158mln barrels of oil per square mile.

That estimate extrapolated over the possible extent of the ‘play’ was then described, in an interview with the BBC, as being around 100bn barrels of oil.

Schlumberger’s report today, however, suggests the ‘play’ could actually comprise 255mln barrels per square mile.

It also incorporates the shallower, lower risk, Portland discovery, which is estimated to have 16.2mln barrels per square mile, so, in total, the report estimates that the project could comprise 271.4mln barrels per square mile.

UK Oil & Gas Investments (LON:UKOG), the largest Horse Hill stakeholder listed in London, commissioned the Schlumberger report, which has effectively corroborated the prior NUTECH findings.

Each report used different proprietary methodologies and they have produced what has been described as quite similar results, and it is the similarity of the estimates at the centre of the respective reports that is the ‘main encouragement’, says Solo Oil chief executive Neil Ritson.

Ritson describes the Schlumberger report as “good confirmation” of the significant findings initially provided by NUTECH, and said that seeking independent corroboration was a good move by UKOG.

“The more significant something is, the more you want to get it independently confirmed, and that is what they’ve done,” he told Proactive Investors.

Nevertheless, Ritson remains of the view that it is still very much early days for the regional exploration of the deeper Kimmeridgean mudstones and limestones.

Today’s estimates are of the project’s ‘oil in place’ and the company says they should not be construed by investors as either recoverable resources or reserves. Instead, he highlights that the next material focus for Horse Hill will be the planned flow testing of the shallower and lower risk Portland discovery.

More work is required to de-risk the project before such resources and reserves can be defined.

In this regard Schlumberger’s recommended next steps, detailed in the report, are significant.

The consultant will now move on to perform a localised assessment of licences PEDL 137 and PEDL246, meaning it will specifically estimate resources within the areas relevant to the Horse Hill partners.

This would then be followed with what is termed by Schlumberger as a Rapid Resource Assessment (RRA) across the whole of the Weald basin.

Schlumberger says the approach - which has previously been deployed in the Middle East, North Africa and China – provides key decision making criteria for the early exploration and appraisal of tight reservoirs and ‘hybrid’ plays.

This RRA would assist in assessing conventional and tight oil potential across the basin and would help in the planning of future exploration and appraisal efforts.

UKOG has an indirect 20.35% stake in the Horse Hill project.

Yesterday morning trading in UKOG shares was suspended, along with the other listed Horse Hill participants, pending an announcement.

The share shot up some 50% through early trading today, seeing highs of around 4p, before cooling to 2.82p which represents a 6% gain for session.

Trading also resumed for fellow Horse Hill stakeholders Solo Oil (LON:SOLO), Doriemus (LON:DOR), Alba Minerals (LON:ALBA), Stellar Resources (LON:STG) and Evocutis (LON:EVO).

In each case the shares began well before giving up most of the early gains.

Near the close, shares in UK Oil & Gas were 9% higher at 2.89p while Solo was unchanged at 0.55p.

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