As the English exploration group raises £10mln to fund another year’s drilling and testing activity, it is probably time to (again) talk about the elephant in UK Oil & Gas Investment PLC’s (LON:UKOG) room.
Waiting for his turn to talk at a Surrey planning committee meeting last month, Stephen Sanderson, UKOG chief executive, cut a somewhat frustrated figure as members of the public presented their opposition to the proposals for the Horse Hill project.
READ: UKOG raises £10mln and kicks of Broadford Bridge well testing
One by one, they spoke of the purported risks linked with oil and gas exploration and production, and most objections essentially boiled down to their opposition to fracking.
Superficially, it is easy to understand Sanderson’s frustration.
He and UKOG have repeatedly communicated that its campaign in the Weald basin won’t involve fracking, and explicitly, it was not part of the pending Horse Hill project.
The group’s strategy in its Kimmeridge oil play (which now spans several separate sites through southern England) is to identify locations where the expansive unconventional oil zones are naturally fractured – by definition these areas should yield oil flows without the need for the controversial well stimulation process.
That being said, Wednesday’s update from the Broadford Bridge well site highlights an undeniable and somewhat awkward truth about the UKOG and fracking.
Simply, the projects would be better if fracking was allowed – and, one would therefore assume that in another part of the world, oil companies would be very keen to do it.
Frack Free Horse Hill
At the Horse Hill site, which is in jogging distance of London’s Gatwick airport, three naturally fractured zones were tested successfully (along with other sections, the well flowed oil at a rate of 1,688 barrels per day).
Horse Hill proved that the naturally fractured zones are viable, and the upcoming new programme (which received Surrey Council’s approval) is expected to provide a longer term test of the project’s commercial merits.
Elsewhere, the various oil companies invested in Horse Hill have pursued other projects - such as Broadford Bridge, Brockham, Lidsey and the as yet undrilled Holmwood – to further advance the play.
These subsequent projects will essentially test whether Horse Hill is merely a ‘sweet spot’ or whether a larger scalable play can be proven (with the addition of other naturally fractured oil production zones).
Broadford Bridge – at least one zone would need fracking
Broadford Bridge will be the next to yield results. Indeed, on Wednesday, UKOG revealed that the well testing had begun, though the first zone to be assessed gave a negative result.
Brief testing of the KL1 zone, which is described as ‘shale dominated’, has led the company to conclude that whilst hydrocarbons are present, a sustained commercial flow rate “could only be obtained via reservoir stimulation beyond the scope of its existing regulatory permissions.”
In other words, the zone would need to be fracked in order to be a viable production zone.
WATCH: Horse Hill green light 'a good result for the industry'
The next tests will take place in the KL2 limestone, before the programme moves to the primary targets in the KL3, KL4 and KL5 zones. The programme will determine whether the naturally fractured oil bearing zones can deliver commercial flows and volumes.
The Broadford Bridge well cut an impressive 1,622 feet of oil-bearing zones across the five limestone and shale zones. It promises to be an important de-risking step in the wider Kimmeridge play, should the primary target zones flow sufficient volumes of oil to replicate the Horse Hill success.
Similarly, the other follow on projects also appear to be have significant potential.
But, without fracking, many investor may well be wondering how much of the play’s value will be left in the ground?