Horse Hill Investors beware

Horse Hill Investors beware

I think most people will know that I am not a fan of Horse Hill and the way that it has been discussed by David Lenigas. I haven’t been for months and wrote a piece back in August that I never actually put up on the site. I don’t like writing negative pieces on companies, but do feel that Horse Hill is perhaps one of the biggest injustices on AIM this year.

Lets start with Geology. Despite a few people not believing me, I did study both the Portland and Kimmeridge formations with an onsite geological study maybe 20 years ago. I have held kimmeridge clay that contains oil in my hands.

Now lets have a quick visual practical. If we take a sponge, put it in a bucket of water, then place the sponge on a piece of wood at an angle.

The water will quickly flow out of the sponge down the wood. After a little while the sponge will stop flowing water  and will just sit on the wood. If we poke the sponge it will be wet as it still contains water, even though all the free flowing water has disappeared.

The same applies to the Horse Hill potential oil layers, if we think of oil instead of water and the oil bearing rock layers as being sponges. Most of the oil a long time ago migrated out of the zones, however the zones still contain lots of oil. The problem is that the oil that’s left is stuck in the zone(sponge) and is not readily free flowing. If we poke the sponge with our fingers, it does get wet and in the same way if you drill into the oil soaked zones you will get oil shows, a very small portion of which will be moveable.

This is very well known. It’s always possible that the zones contain very large pockets that just happened to have a store of accessible oil or gas, but trying to find such pockets is still very very difficult particularly without newer 3D methods. 2D is notoriously bad at finding such targets (see FOGL and Scotia).

I do think that investors need to understand why UKOG and the associated rabble of companies attached to it have partaken in Horse Hill. In my opinion finding oil is not one of the primary reasons. Inflating a share price with wild talk about massive oil finds is a major reason, the ability to raise money is a reason, exposure is a reason and the longer term goals of the drill are a reason. Finding oil or gas would again in my opinion be a nice to have if we are lucky enough.

Many will remember David coming onto Twitter, ramping his poor little heart out, only to hit investors with a share placing, once the SP had gone up.

Many will also have just experienced the useful “leak” that talked in detail about a commercial oil discovery, which gathered in investors, spiked the share price and might, just might have enabled a few people to sell out at the top of the spike because they  knew the word “commercial was not actually in the release”.

Longer term drill reasons:  This was mentioned above, its important for investors to understand what I think these are. As many protestors at Horse Hill have known and also as the planning permission clearly hints at, Horse Hill is an exploratory drill aimed at assessed oil and gas porosity with a view to fracking. Obviously the Horse Hill consortium will flatly deny this, as will many gullible Private investors, but the geological reasons stand out a country mile. With lateral drilling alone Horse Hill might be commercially economical. With simple water pumping it might be or it might need the full fracking works. None of the above though will be allowed so close to such populated areas next to one of Europe’s busiest airports.

 

Target Reservoir Oil	OOIP Upside Potential (MMSTB)	OOIP Mean (MMSTB)	Prospective Resources Mean (MMSTB )
Upper Portland Sandstone	116	57	17
Lower Portland Sandstone	284	147	44
Corallian Sandstone	67	33	10
Greater Oolite Limestone	204	104	16
Total Oil	671	341	87
Target Reservoir Gas	OGIP Upside Potential (Bcf)	OGIP Mean (Bcf)	Prospective Resources Mean (Bcf)
Triassic Sandstone	456	234	164

(Taken from UKOG RNS)

So despite the above table taken from UKOG own data, this drilled showed 3.1 for the upper Portland, Water wet nothingness for the lower Portland target,  0 for Corallian and 0 for the greater Oolite, giving a total mean oil of 3.1, against even the lower target of 87 (lets not mention the higher 671 target, which was scary fantasy).

If we assume even a very generous 10% recovery that gives total reserves of just 300k, if we look at other similar plays then 2-3% is probably more likely giving just 100,000 barrels worth. Compared to the similar drills and nodding donkeys we would be looking at maybe 10-15 BOPD. Which by the way,  isn’t even coming to the surface at the moment  and almost certainly wouldn’t be economical with unconventional extraction.

A few final points.

UKOG and the Horse hill consortium are not the only ones to partake in exploration for the sake of doing something rather than actually exploring with a realistic aim of finding and extracting a resource. Its very common in gold exploration business for this to happen.

Horse hill only has a few days left on its exploration license so the management will be well aware of what the Gas plays contain even now. Remember that no logs will be ran on non-conventional targets.

And finally a prediction.

This will be spun out massively, rather pathetic rumours of a missed target to the south (which will keep things going a bit, despite never getting planning permission for a new drill, even if they did it would take a year or two in the UK). Any offshoot drilling should be forgotten about as there simply isn’t time on the license to do this.

New targets will be “discovered” with major potential…much like these existing targets with possible upside potential of 600m barrels of oil(in reality being a meagre 3m, which is never going to economical). New drills in exciting new areas will be discussed.

But most of all in 2 years time Horsehill will be seen as the cynical attempt it was to fool investors into putting money into an impossible pipe dream.

If you have lost or will lose money then I hope you learn from it, if you made money then your very lucky, if you made money selling whilst telling everyone how great it was then…

BTW I haven’t actually read, listened to any blogs etc on Horsehill, nor really read the forums, having obtained my info from RNS’s, tweets  el al  so sorry if this steps on anyone’s toes.