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UKOG wants as much of the Weald basin as it can get, Lenigas says

“UKOG picking up great oil deals in UK for stuff-all. We have faith in UK oil sector when others are reducing or leaving UK,” he says.

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UK Oil & Gas Investment (LON:UKOG) shares advanced around 10% in early deals on Friday as it topped up its interest in the Weald basin, onshore UK.

Chairman David Lenigas says he wants as much acreage in this part of the UK as he can get.

“UKOG picking up great oil deals in UK for stuff-all. We have faith in UK oil sector when others are reducing or leaving UK,” he told his followers on Twitter.

This morning UKOG announced it had agreed to take full ownership of the Markwells Wood field, by picking up the 40% it didn’t already own from partner Magellan Petroleum for a nominal £1 fee.

Markwell Woods already contains a discovery in the Great Oolite formation, which tested at 100 barrels of oil per day in a 2011 well. UKOG believes the oil in the Great Oolite is an extension of the neighbouring Horndean oil field (an IGas operation in which UKOG owns 10%).

Recent activity, however, suggests there could be broader strategic reasoning behind the deal.

UKOG is the largest listed stakeholder in the Horse Hill project, which is also in the Weald basin, and as a result of ongoing analysis the company believes there could be a new basin-wide regional play across the Weald.

This belief was behind the appointment of American reservoir specialist NUTECH which is helping the company fully understand the potential of Horse Hill and its implications for wider exploration plans.

Similarly, Stephen Sanderson joining as chief executive last month further highlights the strategic focus on Horse Hill and the Weald basin’s potential – Sanderson was the author of Horse Hill’s technical appraisal report.

Broker WH Ireland this week pointed to an upcoming well testing programme at Horse Hill as a key catalyst for UKOG’s shares.

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 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 0.58p.

D’Souza highlights that the Horse Hill well test will cost around £500,000, of which UKOG will pay some £112,000. If it is a success the programme could significantly boost the value of the Horse Hill asset, he said.

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.

The other investors in the project include Solo Oil (LON:SOLO), Doriemus (LON:DOR), Stellar Resources (LON:STG), Alba Minerals (LON:ALBA) and Regency Mines (LON:RGM).

Quick facts: UK Oil & Gas PLC

Price: 0.975 GBX

AIM:UKOG
Market: AIM
Market Cap: £65.54 m
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