Gatwick Gusher and UKOG’s other Assets.
Over the last few months UK Oil & Gas Investments plc LON:UKOG has continued to de-risk its flagship oil discovery asset at Horse Hill near to Gatwick Airport, with the publication of several technical reports from independent consultants such as Schlumberger and Nutech. Using these reports and other information gained from the discovery over the last nine months we estimate a value for UKOG’s 20.358% Horse Hill licence interest. We also attribute a value to UKOG’s other project stakes in Southern England, many of which have been over-shadowed by the interest generated from Horse Hill, but nevertheless warrant closer attention.
As detailed in full in this report in Tables 2 to 6, we have calculated a risked value in our ‘Base Case’ estimate for the Horse Hill licences (PEDL137, PEDL246) of $1.7bn, which is worth $353m net to UKOG. This may seem a huge number, but it only equates to just under 19 cents per barrel, given Nutech’s P50 estimate of 9.2bn barrels of ‘oil in place’ or just over $3 per barrel after a modest 6% oil recovery rate is assumed. A flow test anticipated to take place later this year will
provide us with more information on the recovery rates obtainable, and economic potential.
Although we currently estimate the Horse Hill permits ($353m) make up 84% of the total risked asset value of $419.6m, there is at least one other project that could be a company maker, namely the offshore Isle of Wight (IOW) licence (P1916). Drilling of ‘M Prospect’ next year could generate as much excitement in the market as Horse Hill. Its proximity to Europe’s largest onshore oil production field at Wytch Farm in Dorset may also result in its drilling campaign being closely watched. Our estimated net (77.5% stake) risked value to UK Oil & Gas Investments plc of the interest comes to $32.2m. In addition, the management hope to be awarded an additional licence covering almost half of onshore Isle of Wight in the pending 14th UK Landward Licensing Round, the outcome of which is expected within the next three months.
Proving the concept at Horse Hill has opened the door to providing a better understanding of other oil producing potential areas in the Weald Basin. One such licence of note is Holmwood (PEDL143), in which UKOG last week acquired a 20% stake (subject to planning permission being granted for the exploration well), which is directly east of Horse Hill. Holmwood appears to be a Horse Hill ‘look-alike’. For the moment we can only value the licence interest at a ‘Base Case’ value of $2.1m, because it is based upon an old CPR estimate from 2012, which predates the recent oil discovery at Horse Hill. If approvals can be secured to drilll a well and a discovery is made, then the value of this interest could increase significantly. A horizontal development well is expected at Markwells Wood (PEDL126) in 2016, in a discovery which management now believe is an extension of the neighbouring producing Horndean oil field. Baxter’s Copse (PEDL233), upon which an appraisal well is expected to be drilled in the coming 18 months, along with small stakes held in existing oil producing and cash flow generating licences, all add up to a rich portfolio mix.
After taking into consideration cash, debt and anticipated drilling commitments over the next 18 months, we arrive at a final valuation for UKOG of $413m (£266m). This equates to 13.1p per share, representing considerable upside from the current share price of around 2p. Given this valuation, the company maker and world class potential of several projects and speed at which UKOG is adding new licences, it could be argued the Company is on a one-way trajectory towards being a FTSE 250 mid cap oil industry player. With these thoughts in mind, we recommend UKOG as a ‘Strong Buy’.
You can read the full report issued by Dowgate here : UK Oil & Gas Dowgate Strong Buy Research Note 070715
With a target price of 13.1 GBX this implies the analyst at Dowgate believes their is a potential upside of 555% from today’s opening price of 2 GBX.
