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Explorer plays down Weald shale oil potential

The reserve potential in the shale-oil well in southern England has provoked excitement, but experts are urging caution

Claims that a shale-oil well drilled near London's Gatwick airport indicated the reserve potential of southern England's Weald basin could be considerably larger than previously thought created headlines and sent the share prices of companies involved soaring. 

UK Oil & Gas Investments (UKOG), the minnow that made the claim, has since scaled back its estimates, while industry experts have urged caution, saying it is too early in the exploration phase to make confident forecasts about the extent of reserves, let alone the prospects of extracting them commercially.

UKOG said on 9 April that analysis by US firm Nutech of results from the Horse Hill-1 well drilled last year on licence area PEDL137 suggested there was 158m barrels of shale oil in place per square mile in the area. The results covered a 653 feet aggregate net pay section, with the oil in place largely located in the Upper Jurassic Kimmeridge interbedded limestone and mudstone sequence. 

Stephen Sanderson, UKOG's chief executive, said that if this was scaled up there could be 100bn barrels of oil in place across southern England, while adding in a statement that 'the US analogues have estimated recovery factors of between 3% and 15% of oil in place'. That would imply it might be possible to get 3bn-15bn barrels out of the region - a sizeable resource, given the UK has extracted 45bn barrels of oil from the North Sea since large-scale production started there in the 1970s. 

However, the company has since pedalled back on its estimate for the Weald basin as a whole, saying on 15 April, "the company has not undertaken work outside of its licence areas sufficient to comment on the possible oil in place in the whole of the Weald basin". 

UKOG holds a stake of around 20% in PEDL 137 through its direct holding in the operator Horse Hill Developments, which owns 65% of the licence, and a 6% interest in Edinburgh-registered Angus Energy, the largest stakeholder in HHDL with a 40% stake. US-based Magellan Petroleum owns the remaining 35% stake.

Licences in the surrounding area are held by companies including Celtique Energy and Cuadrilla Resources, whose efforts to drill at nearby Balcombe in 2013 was halted by anti-drilling protests.

UKOG say the formation it drilled in PEDL 137 is analogous to the Middle Bakken limestone of the Williston basin, and that further analogues existed in the Three Forks formation underlying the Bakken, the US Permian basin and possibly part of the Upper Jurassic Bazhenov formation of Russia's Western Siberian basin.

UKOG's claims for the region contrast with the findings of a survey published by the British Geological Survey (BGS) in May 2014, which estimated that there could be somewhere between 2.2bn and 8.57bn barrels of oil (bo) in place in its Weald basin survey area, which covered 10,825 square kms. The Weald and surrounding area has long supported small-scale oil production in places, but nothing on the scale of US shale oil plays.

The BGS said the percentage of oil in the rock that could be commercially extracted was unknown, adding that more drilling and testing would be needed to give a better idea of oil production rates. 

Whether the Horse Hill well results are enough to change BGS geologists' views on the prospectivity of the Weald remains to be seen, as the organisation is unable to comment on potentially sensitive issues during the current UK general election campaign. 

However, others say that, while the Weald is proving to be more oil-rich than was supposed in the past, more detailed exploration will be needed to properly assess the area's potential.

"The Jurassic shales of the Weald are beautiful - as good as anything the US can come up with - but the companies need to drill more, obtain core data and test the well to see if it can produce," says Alastair Fraser, a professor at the Department of Earth Science and Engineering at London's Imperial College, who is currently researching the UK's shale oil and gas potential.

Fraser said the likely sweet spot for shale oil lies within a 20-30km radius of Gatwick airport, but that potential tails off outside that area. He says scaling up the results of the early exploration from Horse Hill to cover the wider region is, therefore, a hazardous business. "I can't work out numbers like theirs from my analysis. They seem too high", he adds.

Imperial College's rough estimate for Weald basin resources, which uses different methodology from the BGS, is around 40bn bo in place.

UKOG claims that the rock in their licence area is naturally fractured enough not to require hydraulic fracturing to produce - that would be handy, given that opposition to shale exploration elsewhere has prevented any fracturing taking place in the UK since 2011. 

But geologists say the extent of natural fracturing cannot be assessed until further analysis takes place and that no one can tell whether stimulation will be needed until production test drilling takes place - UKOG and its partners have yet to reveal details of their plans.

Decades-old small-scale oil production in similar geology in Kimmeridge Bay in nearby Dorset on the south coast of England suggests production without fracturing could be limited. There, a single nodding donkey produces a little over 60 barrels a day of oil from naturally fractured rock, which Fraser says is good estimate of what a naturally fractured, tight Jurassic carbonate reservoir could produce. 

This contrasts with production in the Bakken shale of the US, where wells need to flow at an initial rate of around 500 barrels a day (b/d) to be deemed commercial - and such figures are largely achieved only by fracturing.

"Without fracturing, production here could be an order of magnitude different from the US. One suspects that anyone who wants to produce commercially from the Weald is going to have to bite the bullet and frack it," Fraser added.

Other environmental issues are also likely to prove a tough challenge for prospective producers. In the US, shale oil production requires around 10 wells per square km. In the UK - where resistance to the construction of onshore wind turbines has already pushed much of that industry offshore - concerns over the impact of a lattice of oil wells and the associated infrastructure on the countryside, are likely to slow down development, especially given increasingly tough UK environmental regulations. 

Against this background, the potentially high cost of extraction may be the least of the industry's problems. While shale oil production wouldn't be viable today, oil prices are likely to have risen by the time any shale oil development takes place in several years' time. 

However, the potential of the Weald basin should be enough to keep the oil industry interested in keeping a toehold there. Whether it is enough to attract larger players than those already there remains to be seen.

An indicator of the strength of this interest may come from the results of the 14th UK onshore oil and gas licensing round, likely to be released after the 7 May general election. 

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