The programme will test flow rates from the discovery in the Portland reservoir, as well as the ‘blue sky’ Kimmeridge intervals.
It will be a “closely watched” programme, according to analyst Brendan D’Souza, who today began his coverage of UKOG with a ‘buy’ recommendation.
With a 1.3p price target the analyst sees some 130% upside to the current share price of 0.56p.
D’Souza points out that UKOG’s shares outperformed both the AIM oil sector and the AIM All-Share benchmark in 2014, and he says this was due to its robust portfolio.
UKOG is the largest listed stakeholder in the Horse Hill discovery, which is just a few miles from Gatwick airport, and it has also put together a broader portfolio of English oil and gas assets – all of which are onshore.
A deal with Northern Petroleum in late 2014 added production and provided a revenue generating base for the company.
“In little over a year since the company has been in operation, management has assembled a robust portfolio of assets ranging from exploration to production, which are underpinned by tangible discovered resources and reserves,” D’Souza said in a note.
“UKOG’s 2015 work programme includes activities on two assets, for which it is fully funded.”
D’Souza highlights that the Horse Hill well test will cost around £500,000, of which UKOG will pay some £112,000.
A successful testing programme could significantly boost the value of the Horse Hill asset, he added.
The Portland discovery at Horse Hill is currently estimated to contain 8.2mln barrels of ‘most likely’ oil in place, with a ‘low case’ or P90 estimate of 5.7mln and a ‘high case’ or P10 of 12.1mln barrels.
Kimmeridge, which comprises porous limestone intervals as well as clay and shale, was shown to be hydrocarbon bearing during drilling and it represents the ‘blue sky’ opportunity at Horse Hill.
UKOG is among a clutch of AIM-quoted companies that clubbed together to fund last year’s drill programme. It has a 14.5% interest in the project and is the largest listed stakeholder.