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Is David Lenigas running out of time at Horse Hill? Next September, the licences to search for oil at the Weald Basin site expire and unless he manages to prove that the black stuff will flow, his dream of becoming the South East’s J R Ewing may be dead in the Sussex clay.
This is in stark contrast to the 100bn barrel oil bonanza which investors were led to believe was in easy reach earlier this month following a series of disclosures about the potential of the Horse Hill site near Gatwick.
Mr Lenigas – an Australian entrepreneur who first came to prominence at Lonrho Africa and then FastJet – is the chairman of UK Oil and Gas Investments (UKOG), the Aim-listed holding company which indirectly owns a 31pc share of the Horse Hill-1 well through a complex web of holdings. He also happens to own around 4pc of the company alongside four other businesses on Aim.
Oil exploration in the Weald Basin has gone on for decades – only last year, a long-awaited study by the British Geological Survey estimated that between 4.4bn and 8.5bn barrels of shale oil may be present in the Weald.
However, extracting this oil may be a costly affair especially if it required widespread fracking of the kind being used across vast areas of America. Surrey and Sussex aren’t North Dakota and producing oil on this scale in the “garden of England” would require the complete redrafting of existing planning laws.
Hundreds of wells may have to be drilled, new roads constructed and a network of pipelines possibly set up to distribute the crude to refineries. The cost could run into billions, which in the current environment with oil trading well below $100 per barrel, is unlikely to happen.
These realities didn’t stop mainly retail investors piling into UKOG shares on April 9 after the company posted a press release spelling out its latest findings at the Horse Hill-1 well. According to the release, UKOG and its partners were sitting on a prospect with “a total oil in place of 158m barrels per square mile”.
The company’s exploration area covers 55 square miles, which led investors and many in the media to believe that a possible 86bn barrel lake of oil was within easy reach. This perception was compounded by interviews given by Mr Lenigas and UKOG’s chief executive Stephen Sanderson, who respectively said that the find was of national significance and could hold up to 100bn barrels of crude.
UKOG shares spiked from about 1.1p to a high of 4.4p before ending the day at 3p following the announcement and subsequent media blitz. The strong demand for shares saw UKOG’s value more than double from £18m to almost £50m on the day.
As excitement over Horse Hill grew into a frenzy, it is understood that Mr Lenigas received a call from an official at the Department of Energy and Climate Change for a “very routine” chat to discuss the find. Within days, UKOG announced that it had bought the remaining 40pc interest in another Weald Basin licence from its partner in Horse Hill, the Denver-based explorer Magellan.
Magellan didn’t return calls for comment on Horse Hill but did follow UKOG’s announcement with a more cautionary statement about the potential of the prospect.
The deal led some market participants to question the timing of the announcement at Horse Hill.
Within a few days, UKOG’s shares had surrendered most of their gains and “conversations” were taking place at the London Stock Exchange over the Horse Hill statement.
Eventually, the company issued another statement on April 15 to “clarify” its original claim, in which it emphasised that estimates provided by the US survey company Nutech “should not be considered as either contingent or prospective resources or reserves.”
“They have got way out in front of both the technical and operational case with the hype of their announcement,” a senior oil industry source told The Daily Telegraph.
According to the source, Horse Hill is a “hydrid” field where only a small amount of oil sits in a conventional reservoir. Most of the oil appears at this stage to lie in a more complicated “upper Jurassic Kimmeridge” formation similar to the Bakken area of Dakota, the heartland of US fracking.
UKOG says that fracking won’t be required – however, one expert told The Daily Telegraph that 200 wells would have to be drilled to make it commercially viable.
UKOG is unlikely to be involved in the site at this point. Its strategy could be to obtain planning permission to drill and then sell the asset to the highest bidder for a profit, while maintaining a minority interest. But first it must flow-test the Horse Hill well by the end of this year and the clock is ticking.
Institutional investors have also grown sceptical about the potential for Horse Hill. Andrew Monk, chief executive of boutique investment bank VSA Capital, which specialises in Aim-listed resource companies, believes that the development of the site is unlikely ever to receive planning permission.
His client Egdon Resources is a minority shareholder in a neighbouring concession in Surrey, where the operator has struggled for years to obtain the required permits.
“He just won’t get planning permission for the hundreds of wells that will be needed,” Mr Monk said. “To work, it would have to be a massive development. It just won’t happen in the way that investors maybe thought it would.”
Last weekend, shareholders gathered in London at the UK Investor Show, where Mr Lenigas was due to attend to represent UKOG. They were left disappointed when Mr Lenigas did not show up, but perhaps it was a good thing considering some of the criticism levelled at UKOG’s handling of information concerning Horse Hill.
“He is like Marmite,” said Mr Monk in reference to the Monaco-based businessman. “He is an entrepreneur who has been quite successful, but the country doesn’t always like entrepreneurs.”
Mr Lenigas declined the offer of an interview, but it appears that he has already moved on. Late last week, he announced on Twitter that he had established Leni Gas Cuba. The company is registered in the British Virgin Islands and will focus on oil and gas opportunities in Cuba, on the brink of opening up after a historic reconciliation with the US.