Icebergshares: UKOG More than it can chew.

Well I’ve been on holiday and got back to UKOG mania, firstly well done to all those that made a fortune on the sentiment rise. For those that brought in recently on the rise, I wish you the devils luck on making money, leaving with your money, or even not losing too much.

UKOG has commissioned an American company to produce a report on its oil reserves, not only has it done this based on a single drill, but also without 3D. It reported 158m of reserves per a sq mile and even felt it was able to update and come up with a figure of upto 100bn for the entire weald across Southern England.

It has been interesting to watch the media reaction to start with we had newspaper style headlines, however as the day progressed the BBC received information that questioned the massive figure and a more sceptical reporting angle was given.

http://www.bbc.co.uk/news/business-32229794

Quotes such as “CIBC strategist Jeremy Stretch says we should treat the estimates with caution. He said: "There remains a considerable divergence between estimates of reserves and the potential degree of extraction”

And let us not forget “Last year, the British Geological Survey (BGS) produced a report suggesting there were 4.4 billion barrels of oil trapped in shale rock under southern England - which would need fracking to get it out.”

So within a year based on a single drill an American company paid by a rampty ramp company came up with an estimate that’s 25 times higher than the estimate by the BGS which was based on hundreds of drills and samples.

We need to get Nutech in perspective, it’s been ramping the hell out of Shale production in the UK for a couple of years. However lets ignore that and look at the actual figures.

Nutech compares the Weald with Bakken, Wolfcamp and Bazhenov in Russia. In all of those areas TOC’s of 4% or so are the commercial minimum’s.

If we look at the UKOG figures produced by Nutech we only get 17.4m down from the 158m where the TOC is higher than 4%, so a pretty big drop then.

As mentioned in a previous blog, reports from British Universities generally support the idea that TOC’s of 10%+ are needed to support natural extraction in the Kimmeridge layer with a sweet spot of 20%+ needed.

Given an actual recovery rate of say 5% that gives us 850k per sq mile.

Now let’s play a little more…..Kimmeridge is known for good fracturing exactly as UKOG have mentioned, what they haven’t mentioned is that the fracturing tends to be heavy but with small lateral expansion, ie a fracture might extend 5-50cm, this is unlike some other sandstone and mud stone types where the fractures can extend 100’s of metres. 

This means to extract even a fraction of a sq mile, very large laterals (probably 5-10km) will need to be drilled. If UKOG get permission to drill these kinds of laterals in the populous areas around Gatwick then I am a monkey’s uncle.

The final point is the pressure. As mentioned by David in a BBC interview the weald has no pressure…..

This means flow testing will be problematic and will require industrial level permission. Any flow will likely be measured in the 10’s of barrels a day imho. With no guarantee that the hole is commercial.

This morning UKOG had an MCAP of £50m after rising up from £5m. This is a madness figure. The news released doesn’t really change anything. A tremendous amount of poor quality posting is on the forums showing a total lack of geological understanding. Personally I put a realistic mcap of around £5-8m on UKOG at the moment, this will change in Q4 depending on the success or failure of any flow test.

Well done again for those that made money on sentiment, but whenever money is made on sentiment and not on real added value 4 out of 5 investors lose money. Personally I prefer to make money on value adding news….