News of a significant oil find at Horse Hill, beneath the Weald Basin close to Gatwick airport, led to much excitement — and provided some nice boosts to the share prices of UK Oil & Gas Investments (LSE: UKOG), Solo Oil (LSE: SOLO), and the rest of the “Horse Hill mob” who are part of the consortium involved in its development.

We’ve recently had some impressive flow test results too, with both firms reporting on 16 February that oil graded as “light, 40 degree API, sweet” has flowed naturally from an 80-foot Lower Kimmeridge limestone layer at around 900 metres below ground.

Initially a 50/50 mix of water and oil emerged from a one-inch choke, then when the flow was choked back to a half an inch the flow improved to 99% oil. By the next day we heard that the flow had continued at a rate of 450 barrels of oil per day, which is better than had been expected, for nine and a half hours from a slightly smaller choke.

Price spikes

The news has helped drive an 80% spike in the UK Oil & Gas share price since the end of January, to 2.8p, with Solo Oil shares up 37% to 0.4p over the same period — these are very low priced shares, so do beware of any wide spreads if you’re thinking of buying them. But should you be buying them? Before you rush to snap up a chunk of the hoped-for Gatwick Gusher success, you need to consider the longer term.

The latest test results are undoubtedly good news, as they show there is sufficient pressure for the oil to be extracted without artificial lift. But seeing oil flow for half a day or so is a very long way from the months and years that we’d need for the project to turn into a genuinely viable long-term producer. And how much of the estimated 9.2 billion barrels can actually be extracted is still very much unknown. Further planned flow tests which will continue for significantly longer periods will reduce this uncertainty.

The price of oil itself is also a critical factor, after The Telegraph reported Globaldata energy research boss Matthew Jurecky as suggesting that once taxation is taken into account, the Horse Hill development might be looking at a break-even price of as much as $50 a barrel. The price seems to be steadying at around $34 a barrel for now, and in the long term should strengthen, but it could still go either way in the medium term.

Very big risk

The other big unknown is cost. It’s going to take a lot of cash to take this promising discovery all the way to profitable production, and we have no way of even guessing at how much dilution current shareholders will have to take — there’s a lot factored into the share price, but right now it’s unquantifiable.

I am relatively bullish about the price of oil in the longer term, and the Horse Hill discovery is looking very impressive to me right now, so I’m hopeful that this consortium of companies and their investors will do well out of it. But the known risks alone are to much for me, never mind the unknown unknowns. So if you’re tempted I wish you luck, but it’s not one for me.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.