Solo Oil has been granted the necessary permit to carry out a flow test of the Horse Hill-1 oil discovery well. The UK-listed investment company has also announced that it has been offered a licence that it previously applied for, covering five part blocks onshore the Isle of Wight. We are pleased that the permit has been granted as it enables the testing of the well, the results of which will be used to determine the viability of a Portland oil development. The award of the new licence enables Solo to further diversify its portfolio of investments. Our relative and sum of the parts valuation has, at this stage, attached no value to Solo Oil’s interest in the Horse Hill exploration and five part blocks licences, given their early development stage, and so any further positive news here would result in an improvement to our current valuation (of £22.07 million).
Horse Hill Flow Test Consent Granted
The HH-1 well is located within onshore exploration licence PEDL 137, on the northern side of the Weald Basin near Gatwick Airport. Solo has a net attributable interest of 6.5% in the licence area. According to the operator Horse Hill Developments, the planned flow test is designed to test both the oil bearing Upper Portland sandstone reservoir and the Kimmeridge limestone reservoirs beneath the Portland. The test is aiming to provide the necessary reservoir engineering data to enable an assessment of the commercial viability of the Portland sandstone discovery, where significant oil shows were encountered whilst drilling. The test will also provide a further “proof of concept” for the Kimmeridge tight oil play, which has previously been shown to flow oil elsewhere in the same formations of the Weald Basin, at Balcombe, c.10 miles to the south. Solo believes that testing will now occur in early 2016.
Solo plans to hold a 30% interest in the new licence, which covers an area of c.200km2 and contains the onshore extension of the drilled conventional M Prospect and an undeveloped Portland oil discovery at Arreton, and further undrilled conventional oil prospects. Nutech has estimated that the Portland contains a total oil pay of 63 feet, with the limestones within the underlying Cornbash and uppermost section of the Great Oolite reservoir formations containing a further 127 feet of total oil pay.
In arriving at the above company valuation of £22.07m, we have estimated a value for Solo Oil’s two key projects (Ruvuma PSA and Kilwani North Development Licence) by taking the estimated NPV to total proven reserves for other, similar projects (Mnazi Bay Concession Area and Orca Exploration’s PSA, respectively) and applying them to the Solo Oil projects.