Irrational exuberance

As a junior oil reporter many years ago, I was warned by my editor about “silly season” stories and other hardy perennials. A favourite was “Oil found in Dublin Bay”. It looks like “Southeast England is the next Texas” will become the UK general media’s new one, “Earthquake fears from killer fracking” having lost its momentum with the brakes being applied to work in Scotland and Lancashire.

Extrapolation from the success of one well in the Weald basin in Kent has been hyped by the general media to a ridiculous extent. There has been no flow testing of the Horse Hill discovery, not even further appraisal drilling, let alone assessment of the commerciality of whatever resources can be firmed up. But, if you believe the hype about Horse Hill, every child’s pony in the “stockbroker belt” south of London is about to be replaced by a sinister nodding donkey.

But blow away the froth and a more serious question remains. Is the UK onshore oil and gas industry due a renaissance? In 1996, onshore crude production peaked at around 105,000 b/d. But some 90pc of that came from Wytch Farm in southern England, Europe’s biggest onshore producer. By last year, the total was down to under 21,000 b/d because Wytch Farm production has dwindled. Gas production was 820,000 m³/d, primarily associated gas.

Industry association UK Onshore Operators Group (UKOOG) had stultified. The sector was left to a clutch of small, if persistent, players such as Igas, Egdon Resources, and Rathlin Energy after the bigger companies pulled out. Just 19 onshore wells were drilled in the UK last year.

But there are some signs of recovery. The number of operators in UKOOG’s membership has risen modestly to around 25, accounting for some 90pc of all licences. But, more importantly, some of the new members are heavy hitters — UK utility Centrica, Switzerland-based petrochemical company Ineos and Total. Their interest comes largely on the back of unconventional gas prospects — Ineos has farmed into IGas and BG licences as it eyes alternative feedstock sources for its production facilities. Whether this interest continues will be decided by the local and national political battles over hydraulic fracturing (fracking). There’s all to play for — France has rejected fracking wholesale.

The outcome this summer of the 14th Onshore Licensing Round will be an indicator of whether conventional exploration and production is attracting more interest. There have been 95 applications for 295 blocks, but the government department concerned declines to say how many companies have applied. Corin Taylor of UKOOG is watching to see if larger companies have applied because that would suggest a resurgent interest in onshore prospects.

True, the numbers being bandied about after yesterday’s announcement — 158mn bl of oil place for each square mile — need to be put in the context of recovery rates in similar geology that may be no more than 3pc. But, taken alongside recent studies by the British Geological Survey and by Imperial College, the numbers point to the possibility of a serious amount of recoverable oil. And the major shareholder in the Horse Hill licence area (confusingly called UKOG — note the single “O”), says it “considers that the high pay thickness, combined with interpreted naturally fractured limestone reservoir with measurable matrix permeability, gives strong encouragement that these reservoirs can be successfully produced using conventional horizontal drilling and completion techniques.”

No fracking will not mean no protests — expect the bunker on the 10th hole to become a bunker in another sense — but it might allay some fears over the environmental costs of production and allow the industry to once more wheel out Wytch Farm as an example of good neighbourliness.

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