UK Oil & Gas Investments PLC £10M Financing and BB-1z Optimised Flow Testing (5123W)

TIDMUKOG

RNS Number : 5123W

UK Oil & Gas Investments PLC

15 November 2017

UK Oil & Gas Investments PLC

("UKOG" or the "Company")

GBP10 Million Financing and Commencement of BB-1z Optimised Flow Testing

Highlights:

-- Further GBP10 million cash funding secured, giving a total of GBP16.5 MM raised to-date in 2017

   --      Company now fully funded to deliver planned drilling and testing programme through 2018 

-- Optimised sequential flow testing of up to 9 zones underway at Broadford Bridge-1z ("BB-1z")

-- Further gas flared from two short tests in Kimmeridge Limestone 1 ("KL1"), KL2 limestone and primary objective limestone horizons KL3, KL4 and KL5 to be tested shortly.

Financing:

UK Oil & Gas Investments PLC (London AIM: UKOG) is pleased to announce that it has today entered into a GBP10 million loan agreement ("Loan") with Cuart Investments PCC Ltd and YA II PN Ltd ("Investors"), an investment consortium arranged by Riverfort Global Capital Ltd. A first tranche of GBP7.5 million has been drawn down by the Company, with a second tranche of GBP2.5 million due to be drawn down on 31 December 2017. The first and second tranches are repayable on 13 November 2019 and 31 December 2019, respectively.

The Loan attracts 0% interest and may, at the sole discretion of the Investors, be converted into new ordinary shares in the Company. The conversion price is the lower of either a share price of 8 pence, or 90% of the Company's lowest daily volume weighted average price ("VWAP") during the five days prior to the conversion date. The Loan is convertible in tranches of not less than GBP250,000, with a limit of GBP3 million per quarter, unless otherwise agreed by the Company.

The Loan includes a provision that, for as long as any portion of the Loan is outstanding, neither the Investors nor any of their affiliates shall hold any net short position with respect to the equity of UKOG.

UKOG can repay the principal amount of the Loan at any time for cash, provided that the 5-day VWAP of the Company's equity is less than 8 pence and a prepayment fee equal to 10 per cent of the principal amount of the Loan then outstanding is paid by the Company to the Investors.

Use of Funds:

The Loan, as a source of general working capital, will enable the company to carry out its stated forward drilling and testing programme over the coming 12 months. This programme includes the completion of the BB-1z flow tests, the forthcoming production testing and appraisal drilling programme at Horse Hill and the drilling and testing of the Holmwood exploration prospect, a Horse Hill-1 and BB-1 geological look-alike.

BB-1z Operational Update:

Following the successful removal of the original well completion assembly, optimised sequential flow testing has commenced at the Company's 100% owned BB-1 and 1z exploration discovery, located in licence PEDL234. The new testing programme, formulated in conjunction with the Company's well-test consultants in Houston, Texas and in the UK, encompasses up to nine individual test zones throughout the Kimmeridge Limestone KL1-KL5 reservoir section, each of around 50-100 ft vertical extent. It should be noted with Horse Hill only testing KL3 and KL4, BB-1z will be the first Weald Basin well planned to test discrete KL1, KL2, and KL5 reservoir zones. As previously announced, the first phase of optimised testing utilises much of the well's existing 1047 feet of perforations.

Two short initial tests over secondary shale-dominated fractured reservoir objectives within the KL1 were performed. The interbedded shale and limestone stringers returned gas to the flare. In the second test, completion fluids were returned to the well at an initial natural flow rate of over 370 barrels per day, accompanied by a wet gas blow. Although these two KL1 zones are hydrocarbon bearing, the Company concludes that sustained commercial flow rates from the shale dominated KL1 could likely only be obtained via reservoir stimulation beyond the scope of its existing regulatory permissions.

Testing will now move directly upwards into the overlying KL2 limestone, and then to the primary KL3, KL4 and KL5 limestone-dominated reservoir objectives, where hydrocarbons were recovered to surface from recent BB-1z testing and BB-1 coring operations.

Flow testing is expected to continue until the end of 2017 to establish whether the extensive connected natural fracturing seen in the oil-bearing KL2-KL5 primary objectives can deliver flow at commercial rates and volumes.

About BB-1:

As previously reported, BB-1 was purposely drilled in a location where no conventional hydrocarbon trapping mechanism within the Kimmeridge reservoir section is evident. Therefore, in the Company's opinion, the presence of flowing, light Kimmeridge oil and associated solution gas at BB-1z provides proof that the Kimmeridge at Broadford Bridge contains a significant continuous oil deposit of around 1400 ft gross vertical thickness.

The near identical Kimmeridge reservoir parameters and geology seen at BB-1 and 1z and the Horse Hill-1 Kimmeridge oil discovery, in which the Company holds a 32.435% interest, some 27 km to the northeast, demonstrates that the Kimmeridge oil accumulation is also laterally extensive across the Central Weald Basin and, consequently, a nationally significant oil resource.

UKOG, as the largest licence holder in the Kimmeridge oil accumulation's prospective area is well positioned to exploit this extensive oil resource.

Stephen Sanderson, UKOG's Executive Chairman, commented:

"This GBP10 MM funding, the largest in the Company's short history, ensures that our stated drilling and testing programme, spanning four wells over the next 12 months, is fully funded.

The programme has key regulatory permits in place, is designed to further appraise the wider Kimmeridge continuous oil deposit plus the Horse Hill Portland oil discovery. Its overall aim is to provide stable commercial production and cash flow by early 2019. A positive programme outcome will give the company a solid base for further drilling and development of the significant untapped Kimmeridge resource-base underlying its extensive licence interests.

The flow testing at BB-1z continues to be a key element of the Company's wider programme and we remain highly encouraged by the natural flow of further hydrocarbons to surface."

Qualified Person's Statement:

Stephen Sanderson, UKOG's Executive Chairman, who has over 35 years of relevant experience in the oil industry, has approved the information contained in this announcement. Mr Sanderson is a Fellow of the Geological Society of London and is an active member of the American Association of Petroleum Geologists.

For further information, please contact:

UK Oil & Gas Investments PLC

   Stephen Sanderson / Kiran Morzaria                                     Tel: [phone] 

WH Ireland (Nominated Adviser and Broker)

   James Joyce /James Sinclair-Ford                                           Tel: [phone] 

Cenkos Securities PLC (Joint Broker)

Joe Nally / Leif Powis Tel: [phone]

Public Relations

   Brian Alexander / David Bick                                                    Tel: [phone] 

Glossary

 
 completion (assembly)   a generic term used to describe the assembly of 
                          downhole steel production tubing and equipment 
                          within a well that allows safe and efficient production 
                          from an oil or gas well 
----------------------  ---------------------------------------------------------- 
 continuous oil          a petroleum accumulation that is pervasive throughout 
  deposit                 a large area, which is not significantly affected 
                          by hydrodynamic influences (i.e. the buoyancy 
                          of oil in water) and is not trapped by structural 
                          or stratigraphic geological conditions. The deposit, 
                          in contrast to conventional accumulations, has 
                          therefore not accumulated by the migration of 
                          petroleum over medium to long distances. The petroleum 
                          in such deposits is found within, or immediately 
                          adjacent or close to, the pore spaces where the 
                          petroleum is generated, i.e. those pore spaces 
                          lying within petroleum source rocks containing 
                          organic rich compounds (kerogen) that, when heated 
                          over geological time, transform into petroleum. 
                          These accumulations are generally associated with 
                          organic-rich shales such as the Kimmeridge Clay 
                          Formation. Such accumulations do not generally 
                          contain significant volumes of free, mobile formation 
                          water and therefore have no observable hydrocarbon-water 
                          contacts. The extent of the accumulation is generally 
                          defined by the limit of where burial depths have 
                          been sufficient to transform organic matter within 
                          the petroleum source rock unit into petroleum 
----------------------  ---------------------------------------------------------- 
 discovery               a discovery is a petroleum accumulation for which 
                          one or several exploratory wells have established 
                          through testing, sampling and/or logging the existence 
                          of a significant quantity of potentially moveable 
                          hydrocarbons 
----------------------  ---------------------------------------------------------- 

 flow test               a test period where hydrocarbons are flowed to 
                          surface through a test separator. Key measured 
                          parameters are oil and gas flow rates, downhole 
                          pressure and surface pressure. The overall objective 
                          is to identify the well's capacity to produce 
                          oil at a commercial flow rate and to recover oil 
                          in commercial quantities or volumes 
----------------------  ---------------------------------------------------------- 
 limestone               a sedimentary rock predominantly composed of calcite 
                          (a crystalline mineral form of calcium carbonate) 
                          of organic, chemical or detrital origin. Minor 
                          amounts of dolomite, chert and clay are common 
                          in limestones. Chalk is a form of fine-grained 
                          limestone, being made of the remains of calcareous 
                          planktonic algae called coccoliths. The Kimmeridge 
                          Limestones are comprised of fine grained coccoliths, 
                          fine grained calcium carbonate mud, clay minerals, 
                          together with dark grey organic matter 
----------------------  ---------------------------------------------------------- 
 (limestone)             a series of discrete, individual, thin (limestone) 
  stringers               beds or rock units, each bed, or unit, being typically 
                          up to a few feet in vertical thickness 
----------------------  ---------------------------------------------------------- 
 natural flow            or 'free flow', a well flowing to the surface 
                          without the use of a downhole pump 
----------------------  ---------------------------------------------------------- 
 perforation(s)          holes made through the well's steel casing and 
                          cement via small shaped explosive charges which 
                          connect the reservoir fluids to the well's annulus 
                          and permit the flow of fluids into the wellbore 
----------------------  ---------------------------------------------------------- 
 solution gas            or associated gas, is natural hydrocarbon gas 
                          generated by the process of transforming organic 
                          matter into oil that remains in solution within 
                          an oil reservoir under reservoir conditions 
----------------------  ---------------------------------------------------------- 
 wet gas                 associated gas derived during the generation of 
                          oil in the subsurface that contains methane, ethane, 
                          butane, propane and pentane. Wet gas shows were 
                          encountered whilst drilling the Kimmeridge at 
                          BB-1z, HH-1 and most of the legacy wells drilled 
                          in the central Weald area 
----------------------  ---------------------------------------------------------- 
 

UKOG Licence Interests

The Company has interests in the following ten UK licences:

 
Asset              Licence        UKOG's       Licence Holder      Operator      Area (km(2) )          Status 
                                 Interest 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
                                                 UKOG (GB)       IGas Energy                        Field in stable 
Avington (1)       PEDL070          5%            Limited            Plc             18.3             production 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
Baxters Copse      PEDL233         50%           UKOG Weald      IGas Energy         89.6        Appraisal/development 
(2)                                               Limited            Plc                         well planned; licence 
                                                                                                   extended to 2018 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
Broadford Bridge   PEDL234         100%        Kimmeridge Oil   Kimmeridge Oil       300.0        BB-1 & 1z drilling 
(3)                                            & Gas Limited    & Gas Limited                    completed, testing of 
                                                    (4)              (4)                            multiple zones 
                                                                                                       underway 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
Holmwood (3)       PEDL143         40%              UKOG         Europa Oil &        91.8             Holmwood-1 
                                                                Gas (Holdings)                     exploration well 
                                                                     plc                            planned in 2018 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
                                                 UKOG (GB)       IGas Energy                        Field in stable 
Horndean (1)        PL211          10%            Limited            Plc             27.3             production 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
Horse Hill (5)     PEDL137       32.435%         Horse Hill       Horse Hill         99.3        Planning Permission & 
                                                Developments     Developments                    EA permit granted for 
                                                    Ltd              Ltd                         production tests and 
                                                                                                       two wells 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
                                                 Horse Hill       Horse Hill 
                                                Developments     Developments 
Horse Hill (5)     PEDL246       32.435%            Ltd              Ltd             43.6              As above 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
Isle of Wight       P1916          100%         UKOG Solent      UKOG Solent         46.7        Reviewing M prospect 
(Offshore) (3)                                    Limited          Limited                        viability and well 
                                                                                                         plan 
---------------- 
Isle of Wight 
 (Onshore) (2,                                                                                    Preparing Arreton-3 
 3)                PEDL331         65%              UKOG             UKOG            200.0        planning submission 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
Markwells Wood     PEDL126         100%          UKOG (GB)        UKOG (GB)          11.2         Submitted planning 
 (2)                                              Limited          Limited                          application for 
                                                                                                  appraisal and field 
                                                                                                      development 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
 

Notes:

1. Oil field currently in production.

2. Oil discovery pending development and/or appraisal drilling.

3. Exploration asset with drillable prospects and leads. Contains the Broadford Bridge-1 and 1z discovery well and the extension of the Godley Bridge Portland gas discovery.

4. UKOG has a 100% interest in Kimmeridge Oil & Gas Limited, which has a 100% interest in PEDL234.

5. Oil discovery with recently completed flow testing.

6. UKOG has a direct 49.9% interest in HHDL, which has a 65% interest in PEDL137 and PEDL246.

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014.

This information is provided by RNS

The company news service from the London Stock Exchange

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November 15, 2017 02:01 ET (07:01 GMT)