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Six things we now know about the Gatwick Gusher

It is a good looking result, there's no getting away from that. Now, here's a quick guide to what we now know about Horse Hill, the so-called 'Gatwick Gusher'.
Six things we now know about the Gatwick Gusher
Over a seven hour test the flow of oil was measured at a rate of 463 bopd

It has been confirmed that the oil flows from the Horse Hill discovery well, near Gatwick airport, continued at a stable rate above 456 barrels per day after testing resumed on Tuesday.

A second test, carried out yesterday, lasted for nine hours. The day before, a seven hour test measured oil flow at a rate of 463 bopd.

Shares in the six oil explorers involved in the company strongly on Tuesday, and were up again today.

UK Oil & Gas (LON:UKOG) is the largest listed stakeholder, with a 20% stakeholder in the project, while the other include Solo Oil (LON:SOLO), Alba Minerals (LON:ALBA), Stellar Resources (LON:STG) rose 27%, Doriemus (LON:DOR) and Evocutis (LON:EVO).

Here we take a closer look at what’s going on at the high profile project.

1 - There’s no getting away from it, this is a very good looking result

Arguably much lower rates would probably have qualified as a success.

That this result comes from a type of reservoir that was unproven in the basin - at a project that has been scrutinised heavily - is particularly rewarding for the companies involved.

From just one zone the well flowed more than 450 bopd; in the context of any UK onshore well that’s more than decent.

The initial flow has been natural, not the result of stimulation or other enhanced recovery.

Further tests will be carried out here, and in the coming weeks two more zones will also be tested.

2 - Proof and vindication

Just who said precisely what, and quite how the large numbers that have been spoken about were arrived at, one thing is pretty clear: the companies involved in Horse Hill think it could be a very large project.

Third party estimates, from contractors, have indicated there could be billions of barrels of oil resources locked within the ground.

How much of that huge resource can be recovered was the big unknown. It still is. But, the fact that initial flows are already in excess of in-house expectations clearly bodes well for the Horse Hill proponents.

David Lenigas, formerly chairman and still shareholder of UKOG, says Horse Hill’s doubters and ‘the poison pens’ would now have to eat their hats.

In his personal blog, the outspoken entrepreneur said: “February 2016 will be remembered for many reasons.  Not because David Lenigas was vindicated.  This is more important than that. 

“It will be remembered as the dawn of a new energy era of prosperity for the UK.”

(For the full blog post see: www.davidlenigas.com/uk-new-global-oil-powerhouse)

3 - The picture is not complete

While today’s news is clearly positive for the companies involved, it is still not known quite how good the result is, nor is it know how sustainable these initial rates are.

At the time of writing a second flow test is underway.

Typically, the flows from oil wells are most prolific immediately at the start - for a simplistic picture, for example, think what would happen if you pierced a full water balloon.

In reality, for an operating oil field it is probably more important to know how quickly and by how much the flow of oil is likely to reduce thereafter.

So, like any new oil field development, longer term testing will be required. And that is, naturally, in the planning for Horse Hill.

4 - Still not everyone is convinced

Energy market journalist Andy Critchlow, a noted Horse Hill sceptic, via Twitter, claimed that at the rates announced today the Horse Hill well is barely viable.

 

 

Whatever the argument regarding the relative economic merits, there are of course environmental protesters against the project.

As a side note, a pragmatist might suggest that Horse Hill’s natural flow could be something for them to celebrate too.

The companies involved have maintained that they don’t intend to frack the Horse Hill project, and they insisted a confidence that such measures wouldn’t be needed.  Today’s result suggests they may be right.

Among the protest groups are ‘Frack Free Surrey’. So, if the Horse Hill shows it can continuously flow at sufficiently high rates, the protestors may well get their wish (though they’d probably rather no oil project at all).

5 - A sideways look at Horse Hill

Today’s result comes from a vertical 80 foot interval of Lower Kimmeridge limestones and it yielded a flow of 463 bopd. And another, very slightly different way to say that is, it flowed 463 bopd from an area of 80 feet.

Using horizontal drilling it is envisaged that a well could gain exposure to a much larger area.

In an interview with Proactive Investors, Solo Oil chairman Neil Ritson highlighted that a horizontal at Horse Hill might open up the well to as much as 1,000 feet of the limestone. Such a well could in theory be expected to flow more oil.

Horizontal drilling methods also allow companies to have a comparatively small above surface footprint, rather than drilling lots of vertical wells (ie one horizontal with exposure to 1,000 feet would access the same area as at least 12 vertical wells).

Ritson also suggested a side-track of the existing well, to make it horizontal, might be possible.

A longer term development could even comprise multiple horizontals, drilled and operated from the same well site.

Whatever form any eventual development takes, the blueprint will come only after the completion of the full three interval testing programme, and most likely a number of months of analysis and evaluation.

6 - Ifs, buts and maybes

Horse Hill appears to be a successful UK exploration project. More work will be required for it to become a successful field development project.

Naturally for a relatively early stage project like this, there are still considerable unknowns and risks.

Chief among them will be the rates for longer term oil flows. Also, at some point, the question of repeatability will have to be answered.

Much of the recent headline-grabbing estimates were based upon the assumption that what was found at Horse Hill extends across a larger part of the Weald basin. 

Other wells, in other places will at some point be needed to determine whether Horse Hill is in an isolated ‘sweet spot’ or whether it is indeed a billion barrel expanse of an oil play.

All that will come later - possibly a lot later when oil prices are better - but, today, investors in the Horse Hill explorers will be happy for what clearly looks like a good result.

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October 30 2015

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