Gatwick oil explorer plays down recoverable reserves

The tiny explorer that claimed last week to have found a vast oilfield near Gatwick airport has clarified its expectations, saying the hydrocarbons cannot yet be considered prospective.

UK Oil & Gas Investments said on April 9 it had discovered a "world-class potential resource" after drilling into the Weald Basin at Horse Hill in Surrey and finding 158m barrels of oil per square mile.

David Lenigas, its chairman, said the whole basin could contain "multiple billion barrels". But on Wednesday, UKOG said in a statement - after an instruction from the London Stock Exchange to give further details - that the oil in place "should not be considered as either contingent or prospective resources or reserves".

Contingent resources are those considered potentially recoverable but not yet mature enough for commercial development.

"Further development work in the form of appraisal drilling, well testing and assessment of recovery factors will be required to seek to quantify net resources in relation to the company's licence areas and to prove its commerciality," the statement added.

The explorer's share price soared from 1.1p on April 8 to an intraday high of 4.29p on April 9 after the announcement. However, since then the price has fallen by almost half to 2.24p, suggesting the industry was not convinced by the claims.

Even though the shares rose before falling back, UKOG's modest market capitalisation - its valuation was £38.5m at Tuesday's close - further reflected doubts among industry and investing professionals about the commercial prospects of the licences.

On Wednesday UKOG's share price was flat at 2.27p.

Unlike most drilling reports, UK Oil & Gas's statement did not include low, medium and high case scenarios.

Last May, the British Geological Survey estimated there was 4.4bn barrels of shale oil in the Weald Basin but warned it was "not known" how much could be commercially extracted, as it was believed to be present in the rocks.

Last week the explorer said new oil extraction technology had "comprehensively changed the understanding of the area's potential oil resources".

UKOG's licence covers 55 sq m on the Surrey-Sussex border, in which it has a 20 per cent share, but it extrapolated its findings to estimate that the whole basin could contain up to 100bn barrels - more than four times estimates of the UK's offshore oil reserves.

Additional reporting Michael Kavanagh

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