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Gatwick Oil Estimates Too Good To Be True

Rumors are circulating that a hundred billion barrels of oil have just been discovered at Gatwick airport. I first came across this story at WUWT who tipped their hat to the GWPF. To place this in context, the UK North Sea has produced around 28 billion barrels of oil since production began in 1975. How could we Brits be so dumb as to miss 100 billion barrels just waiting to be pumped from under the home counties?

The well that has caused so much interest is called Horse Hill 1 (HH1) located to the south of London near Gatwick airport on a geological structure called the Weald Basin. This area is already home to a number of small oil fields (Figure 1). HH1 made an oil discovery that flowed at 456 barrels per day from a Kimmeridge age limestone (See Figures 1 and 2). This is very decent for an onshore well these days but at this rate it would take 219 million days to produce that rumoured 100 billion barrels, i.e. 600,817 years. Alternatively, 1000 wells producing at this rate would produce the oil in just 601 years. That’s still a long time for investors to wait for their returns. How do we bridge this gap between 100 billion barrels of oil in the ground and a flow rate of 456 barrels per day?

(Click to enlarge)

Figure 1 Surface geology of the Weald Basin [1]. HH is not on the map but lies just to the east of Brockham.

This is how The Telegraph reported the news:

The well flowed for more than seven hours yesterday (Monday) and further flow tests will be carried out today.

UKOG and its partners in Horse Hill have claimed that more than 9.2 billion barrels of oil lie under the 55 square kilometre licence area in the Weald Basin.

However, some experts have questioned how much of this oil will be recoverable and the viability of large scale drilling ever taking place in the area.

- Horse Hill gusher is a test case for new onshore oil regulator
- Gatwick oil gusher claims ‘wildly optimistic’ warns expert

Protesters flocked to the Surrey site over the weekend to oppose the controversial use of hydraulic fracturing in the area, but the operators say they have no plans to use fracking to produce the oil.

This is how The Telegraph reported on the story last April,

UKOG has been accused of exaggerating the potential of Horse Hill after it said earlier this month that the area within its licence could contain “a total oil in place of 158m barrels per square mile”.

Subsequent statements by the chief executive Stephen Sanderson and the chairman Mr Lenigas claimed that the field held up to 100bn barrels of crude and was “very significant” for the UK. Related: Who Will Be Left Standing At The End Of The Oil War

To understand the reality it is necessary to begin with an explanation and an understanding of the differences between resources and reserves and the difference between conventional oil and light tight oil (LTO, or shale oil). And before doing that a simple explanation of the geology also helps.

(Click to enlarge)

Figure 2 The stratigraphy of the Weald Basin [1].

Figure 2 shows the stratigraphy of the Weald basin according to The British Geological Survey and DECC [1]. Stratigraphy is the study of the layering and depositional history of sedimentary rocks. To the left is chronostratigraphy that is a measure of age. The foot of the Rhaetian is about 209 million years old while the top of the Valanginian is about 134 million years old. Hence the rocks in the Weald were deposited over a 75 million year period.

To the right is the lithostratigraphy which is a description of the sedimentary rocks being laid down sequentially. Note how the lithostratigrpaphy switches between limestone and mudtsone with only occasional sandstone beds in the sequence.

The surface geology and locations of existing, small, oil fields are shown in Figure 1. HH is not on the map but lies just to the east of Brockham.

The most important unit in the section is the Kimmeridge Clay Formation which is an organic rich black shale with over 20 percent organic matter [1]. This formation occurs throughout southern England and below the North Sea where it is the source rock for most of the oil and much of the gas. The BGS note, however, that in the Weald basin, there are 5 organic rich shale units that may all be targets for shale oil drilling.

In the recent past, the Weald basin was more deeply buried than at present, sufficiently deep and hot to generate oil in the organic shales. The area has since been buckled and uplifted by tectonic forces that have their origins in Alpine tectonics. Hence, many of the oil fields in the area occur at much shallower depths than would normally be expected.

Conventional versus shale oil

In conventional oil fields the oil migrates out of the organic rich source rock and accumulates in a reservoir that is normally a porous limestone or sandstone that is located below an impermeable seal. The buoyancy of oil on water is the force that drives the migration and trapping of conventional oil. In a conventional oil field, the oil will normally flow to surface un-aided owing to its buoyancy. Related: Iraq On The Brink Of Chaos As Oil Revenues Fall

Shale oil (LTO) developments are targeting the oil left behind in the source rock which in normal circumstances is most of the oil that was generated. This oil has not escaped the shale by natural processes and will not flow into a well unaided. It needs help by means of fracking. Fracking creates a myriad network of tiny fractures in the well that are pumped full of sand and this enables some of the oil to flow from the shale into the well.

Resources versus reserves

In simple terms, oil resources represent the amount of oil that a company or government believe may exist. Oil reserves are the portion of that resource that may be produced commercially using existing technology.

In a conventional oil field, the geologists and reservoir engineers work out the size of the trap (the field) and how much oil it contains. They then make educated assumptions about how much of that oil may be recoverable and further assumptions about how much more oil may be found. The recoverable oil provides the reserve figure while the total amount of oil believed to exist in the company’s area provides the resource figure. All of these figures are constrained by measurements made on the size and porosity of the oil trap.

With shale oil, there is no trap, just a very large volume of shale that contains relatively small amounts of oil per unit volume. The conventional methodology of applying resources and reserves breaks down since there is no finite trap to measure. But companies apply the conventional methodology none-the-less and may, as we will see in the case of Horse Hill, come up with some very big numbers that are all but meaningless. Horse Hill actually provides a good test case to explain how this works.

Horse Hill

The Horse Hill exploration license is owned by Horse Hill Developments Ltd, a consortium of investment vehicles and their website is not at all instructive. But roughly 20 percent of the license is owned by a listed company called UK Oil and Gas (UKOG) [2] and they are bound by stock market rules to report information that is compliant with international standards. UKOG, keen to see their share price rise, actually report a lot more information than required making their website a data mine or should I say data mine field? The challenge is distilling the facts.

Let me begin by looking at the data from the HH1 well. We know that under an extended well test dry oil was produced at a rate of 456 barrels per day from a single zone – a lower Kimmeridge limestone. Other zones remain to be tested and so there is still upside from this single well.

The oil is light (40?API gravity) sweet (i.e. low sulphur) crude that is prized most by the industry. To be clear, UKOG and partners have made a conventional oil discovery.

The next question normally asked is how much oil is there? Schlumberger produced the resource estimate shown in Figure 3 prior to the well test being made with a total figure of 271 million barrels oil in place per square mile. At first glance this looks like a huge field. A quarter billion barrels onshore UK would be massive. But then scratching the surface we find that this is not an estimate for the conventional oil discovery but more an estimate of the shale oil “resource” per square mile of the license block area.

In this video issued by the Daily Mail, David Lenigas the Chairman of UKOG mentions that conventional oil estimates in the Portland Sandstone ranges from 3 to 16 million barrels. He also mentions that it was a surprise to find oil in the Kimmeridge limestone but I have failed to find any indication of how large the Kimmeridge accumulation actually is. It is likely that UKOG don’t actually know yet.

Figure 3 Schlumberger’s estimate for LTO resources at HH [2].

UKOG seem content to see conventional oil reserves and unconventional resources conflated. They have in fact done a lot of work estimating the latter (Figures 4 and 5).

Figure 4 UKOG’s estimate for shale oil resources in the whole of their license area [2].

Figure 4 explains that the HH license covers 55 square miles. Hence simply taking the 271 million barrels per square mile from Figure 3 and multiplying that by 55 we get 14.9 billion barrels of oil in place. Figure 4 claims a mere 9.25 billion barrels. Presumably the strata thickness and oil richness declines away from the HH 1 well location. Related: Why OPEC Production Freeze Could Pave The Way For Actual Cuts

(Click to enlarge)

Figure 5 UKOG’s claim of 1 billion barrels in the Kimmerdige Limestones which once again we must presume is LTO resource and not conventional oil.

Figure 5 focusses on the limestones like the one recently flow tested at HH 1. A claim is made for 1 billion barrels of oil in place, but again it is not made clear if this is conventional oil that would flow to surface unaided or light tight oil that requires fracking. It is almost certainly the latter.

Concluding thoughts

To sum up. HH 1 has made a nice conventional oil discovery, we don’t know how large it is but it is likely to be closer to 10 – 100 million than 100 billion barrels.

The 55 square mile HH license block may contain 9 billion barrels of LTO disseminated throughout the rock volume that may only be produced by fracking. It has yet to be proven that any of that oil may be produced. Without a positive fracking test, we still have no idea what percentage of the oil in place may be recovered. And none of this is likely to be commercially viable at current oil prices.

The BGS / DECC report [1] also provides an estimate for the oil in place for the whole of the Weald Basin (Figure 1) with a range from 2.2 to 8.6 billion barrels and a most likely estimate of 4.4 billion. This estimate for the whole of the Weald basin is seriously at odds with the UKOG estimate of 9.2 billion barrels for their relatively tiny license area. Either UKOG and their contractors or the BGS and DECC have not done their sums properly.

It should be clear that the authorities who regulate financial statements from the oil industry in the UK and globally need to provide clear guidance on how LTO resources are reported, especially in circumstances where conventional oil and LTO may occur together as is the case in the Weald basin.

By Euan Mearns

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