WH Ireland has put its view on UK Oil & Gas Investments PLC (LON:UKOG) on hold as analyst Brendan Long now believes the scale of the Broadford Bridge discovery has gone beyond the broker’s previous valuation.
The analyst highlighted, in a note, the company’s report that drilling fluid had been lost in the Broadford Bridge well’s KL3 and KL2 zones which he says suggests large fracture networks are present.
“In our opinion the scale of the resource is now greater than the basis of our valuation, which was premised on the productive capacity of the KL4 and KL3 limestone formations,” Long said.
“As a reminder these formations produced 1,365 b/d at the Horse Hill-1 well; however, the KL2 and KL1 formations have yet to be tested.
“Clearly, in our opinion, if the well is losing fluid into the KL2 formation it too is now a highly prospective oil producing zone on the basis that it must be permeable, which was the key unknown.”
“Additionally, that the shales might contribute to volumes and productivity is not something that has been factored into our valuation.”
WH Ireland’s prior target price was pitched at 2.83p, a level exceeded earlier this week.
Long noted that the drilling of the well will now be completed ahead of logging and a production flow test.
“As a reminder, this will be the first extended production test ever undertaken for the Kimmeridge Limestone play in the Weald Basin, and this will be the culmination of the appraisal work for the BB-1 well,” he added.
“In our opinion, with good production history (stable bottom hole pressure and stable flow rates) it is possible to extrapolate reasonably accurate long-term production profiles, which has potential to be categorical in terms of proving the Kimmeridge Limestone play concept.”