UK Oil & Gas confirms Gatwick gusher

After years of preparation, the unlikely oil field lying underneath Gatwick Airport has finally pumped oil out of the ground. Both the flow rate and quality of oil at the Horse Hill-1 discovery in the Weald Basin have beaten management forecasts, and bosses remain confident this will improve further. This round of testing is clearly a significant step toward commercial production.

At 900 metres underground, a light, 40-degree API, sweet oil flowed naturally to the surface from an 80-foot zone within the Lower Kimmeridge limestone interval, said UK Oil & Gas. An American Petroleum Institute (API) gravity greater than 10 means that, as oil is lighter than water, it floats to the surface and doesn't need removing artificially.

Initially using a one-inch choke, oil flowed at a rate of 700 barrels a day (bpd) from the Horse Hill 1 well in a 50:50 mix of oil and water. Reducing the choke to a steady rate of over 463bpd over seven hours, the mix improved to over 99% oil.

After shooting up as much as 86% to 2.6p in early trade, profit takers moved in, although at no stage have UKOG shares been up less than 25% Tuesday. These are prices not seen since last summer.

Once the shallower tests are complete, UKOG will look to secure regulatory permits to start commercial production. Until the final results are in, WH Ireland analyst Brendan D'Souza has maintained his target price at 5p and reiterates his 'buy' recommendation.

After flow testing finishes, phase two and three operations will move to the shallower Upper Kimmeridge limestone and Portland sandstone zones, 840-615 metres down.

"The flow test, the first ever in the Lower Kimmeridge limestone within the Weald basin, provides proof that significant quantities of moveable oil exist within the Kimmeridge section of the well and can be brought to surface at excellent flow rates," said executive chairman Steve Sanderson.

His sights are set higher, however: "While these flow rates are significant and in excess of management's expectations, it should be borne in mind that the planned future use of a horizontal well and appropriate conventional reservoir stimulation techniques could likely increase flow rates even further."

Claiming that up to 100 billion barrels oil lay beneath the ground, controversial founder David Lenigas quit UK Oil & Gas last July to make way for "sector-experienced executive management". Former chief executive Sanderson replaced the executive chairman, managing the company's interest in the Horse Hill programme. At the time, Lenigas left the company with £8 million cash and a further £10 million debt facility.

UKOG's net attributable 20.358% interest lies in Horse Hill licences PEDL137 and PEDL246, across 55 square miles of the Weald basin, and firmer estimates now reckon they're sitting on over nine billion barrels.

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