Solo Oil (LSE:SOLO) investors have welcomed the firm’s decision to sell its stake in Horse Hill Developments, owner and operator of the controversial ‘Gatwick Gusher’ well in Surrey, with shares rising 9pc to 2.4p in morning trading. The company sold its 15pc position to UK Oil and Gas (LSE:UKOG) for £4.5m, paid through the issue of 234m new shares in UKOG at a price of 1.92p each. This is equivalent to a 4.2pc stake in UKOG, which saw shares fall 4.1pc to 2.3p on today’s news.
Solo said it has made an investment return of 50pc on the additional 5pc it purchased in HHDL in February this year and 45pc on its total investment in the business since February 2014. Meanwhile, the transaction will take UKOG’s stake in Horse Hill Developments (HHDL), which made a loss of £146,208 in the year ended December 2016, to 71.9pc.
HHDL owns and operates the Horse Hill-1 well to the north of Gatwick Airport in Surrey’s Weald basin, targeting conventional Portland sandstone and unconventional Kimmeridge Limestone (KL3/KL4) oil discoveries. The much-hyped well was dubbed the Gatwick Gusher in 2015 following claims of a 100bn barrel find that had the potential to transform Britain’s onshore industry and bring billions to its economy..
However, this has given rise to widespread criticism, with many questioning whether the site can economically recover oil given its tough geological formations. These worries have been made worse by repeated delays and ongoing criticism from environmental groups.
Between July and August, HHDL has been carrying out an extended well test to confirm the well’s commerciality. In its update today, UKOG said results from the Portland oil pool have been ‘very positive’ to date. It added that testing of the two Kimmeridge Limestone oil pools will commence following completion of the Portland test.
Solo’s non-executive chairman, Alastair Ferguson, said: ‘This transaction is in line with our investment strategy and provides evidence of our now proven ability to monetise assets within our portfolio and generate value for shareholders. The transaction enables Solo to retain significant exposure to the Horse Hill project as it undergoes the pivotal testing activities, the results of which have been very positive to date.’
Stephen Sanderson, UKOG’s chief executive, added: ‘This further strategic acquisition firmly cements UKOG as the dominant player in the Horse Hill Portland and Kimmeridge oil discoveries and Licences. UKOG’s three recent HHDL acquisitions provide a valuable controlling interest and exemplify the rationale behind our recent change of AIM status to an operating company. With the positive Portland test results to date, UKOG, supported by its remaining three coventurers, can now steer the way towards permanent HH oil production in 2019.’