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UK Oil & Gas Investments PLC And Solo Oil PLC Climb On Horse Hill Update

Oil investors’ hearts were aflutter on Thursday when UK Oil & Gas (LSE: UKOG), Solo Oil (LSE: SOLO) and four others announced a temporary suspension of their shares “pending an announcement in relation to [their] interests in the Horse Hill-1 well“.

The Horse Hill site is near Gatwick airport, and when oil was discovered there a year ago there was speculation that it could be very big indeed — some were even suggesting more than 150 million barrels of oil in place (OIP) per square mile. So what was afoot?

A big find

The answer to that came on Friday morning, when trading in all six companies’ shares was resumed and we heard that Schlumberger has been carrying out an independent assessment of the reserves at Horse Hill — and has estimated as much as 271 million barrels of OIP per square mile. That total consists of 16 million barrels per square mile in the Upper Portland Sand reservoir, and 255 million in the tight limestone and mudstone plays of the Kimmeridge, Oxford Clay and Lias, we were told.

Shares in UK Oil & Gas, which owns 30% of Horse Hill Developments Ltd, climbed 17% on the news to 3.1p, with Solo Oil (holding 10% of Horse Hill Developments) up 4% to 0.6p. The other four are much smaller companies, and their share prices responded variably — Evocutis dropped 5% to 0.2p, Doriemus gained 3.5% to 0.1p, Stellar Resources climbed 8% to 0.7p and Alba Minerals put on 2% to 0.8p.

So should we be buying into UK Oil & Gas and Solo Oil now?

Plenty of risk

There’s clearly a lot of oil there, but we’re a long way from any eventual production and the path ahead is strewn with sizable hurdles. For one thing, as well as being close to the airport and to residential areas, the surrounding Weald Basin is environmentally sensitive.

There will also be fears that hydraulic fracturing, or “fracking”, will be needed to get at the oil, and the site has already been assailed by protestors — although the project has not yet developed sufficiently to determine what techniques will be needed. It’s also going to be some time before estimates of actual recoverable oil reserves can be produced.

If that’s not enough to put you off, it’s going to be a very costly development and there will need to be a big chunk of cash raised in the coming years. There’s no way of knowing how much the current ownership of these companies will be diluted before any revenue can happen, and early investors in speculative projects like this often end up getting squeezed out.

Reserves dwindling

Countering that, with the exhaustion of the UK’s North Sea reserves coming ever closer and demand for oil expected to keep climbing, there will be major economic and political forces behind developments like Horse Hill.  But over all, it’s not something for me — though I wish you the best if you go for it.

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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.