Why Is UK Oil and Gas Backtracking on Gatwick 100bn Barrel Estimation?

Last week, oil minnows UK Oil and Gas Investments (UKOG) announced discovery of significant oil reserves near London’s Gatwick airport. The company claimed it had located a reserve with the potential to yield up to 100 billion barrels of oil, making it the most significant discovery of oil in the last 30 years.

The announcement prompted a predictable spike in the company’s shares and an equally predictable spike in protests from environmental organisations. It also provoked scepticism from many quarters, chiefly due to the unlikely chance of extracting the majority of the reserves. The article Gatwick Has Struck Black Gold. But Can We Mine It? points out that only 3%-15% of the total amount could feasibly be reached, as well as the likelihood of needing to use fracking to access it. However, there are now even more concerns as to the validity of UKOG’s claims.

Playing Down Expectations

Chief executive for UKOG Stephen Sanderson had originally claimed that the company had access to up to 100 billion barrels, and would be able to recover up to 15% of the reserves, meaning that they had the potential to contribute as little as 10% or as much as 30% to the UK’s oil demand. 

However, it has come to light that the area owned by UKOG is actually significantly smaller than previously imagined. The 100 billion barrel estimate appears to have come from a region spanning 1,100 miles of the Weald Basin. UKOG owns just 55 miles of that particular Basin, meaning that it’s highly likely they own a mere fraction of the estimated oil. Not to mention that the extractability of the oil in question – if indeed the estimates are correct – has yet to be verified.

The new party line is that UKOG now has total oil at a rate of 158 million barrels per square mile. If that rate held for the entirety of their 55-mile perimeter, they would come close to the 100bn barrel estimate… but such an eventuality is highly unlikely.

Peaks and Troughs

Unsurprisingly, their reputation and standing in the stock market has taken something of a nosedive since the initial estimates were reeled in. Initially, shares fell by a massive 18%, but have now steadied out at 2.25p per share, 2% down.

Clearly there is some potential in the Weald Basin, and UKOG should do nicely out of the deal – as should Britain’s oil economy. However, the wild estimates being thrown about last week appear to be way off the mark. Gatwick can yield some oil, but not 100 billion barrels’ worth.