UK Oil & Gas Investments PLC Markwells Wood Oil Field Competent Persons Report (8956Y)

TIDMUKOG

RNS Number : 8956Y

UK Oil & Gas Investments PLC

14 September 2015

14 September 2015

UK Oil & Gas Investments PLC

("UKOG" or the "Company")

Markwells Wood Oil Field Competent Persons Report

UK Oil & Gas Investments PLC (LSE AIM: UKOG) is pleased to announce that a Competent Persons Report ("CPR") by Xodus Group ("Xodus") of the Company's onshore Markwells Wood oil field calculates that the field's Jurassic Great Oolite limestone reservoir contains a 2C or P50 potentially recoverable Contingent Resource of 1.25 million barrels ("MMbbl") net to the Company. The Markwells Wood oil field, in which the Company has a 100% interest, is located in UK licence PEDL126 in the west of the Weald Basin immediately to the east of the producing Horndean Field, in which the company has a 10% production interest, and approximately 12 km northeast of Portsmouth on the south coast of England. The field lies approximately 60 km to the southeast of the Company's Horse Hill oil discovery.

The Markwells Wood Contingent Resources ranges estimated by Xodus are shown in Table 1 below.

Table 1: Xodus' Estimated Markwells Wood Contingent Resources

 
 Oil Contingent               Gross Volumes                         Net UKOG Volumes              Risk     Operator 
  Resources                                                                                       Factor 
                                                                                                    * 
----------------  -------------------------------------  -------------------------------------  --------  --------- 
 (MMbbl)               1C           2C           3C           1C           2C           3C 
                      (low         (best        (high        (low         (best        (high 
                    estimate)    estimate)    estimate)    estimate)    estimate)    estimate) 
----------------  -----------  -----------  -----------  -----------  -----------  -----------  --------  --------- 
                                                                                                             UKOG 
 Markwells                                                                                                   (GB) 
  Wood                0.63         1.25         2.71         0.63         1.25         2.71        75%      Limited 
----------------  -----------  -----------  -----------  -----------  -----------  -----------  --------  --------- 
 

*The Risk Factor (or estimated chance, or probability, that the volumes will be commercially extracted) was determined by Xodus to be 75% for these Contingent Resources, to reflect the remaining subsurface, operational, commercial and socio-economical risks related to the development and implementation of the full field, which will likely be significantly influenced by the results from the first horizontal production well

The CPR is based on Xodus' review and audit of the Company's recent subsurface evaluations of all available data over the Markwells Wood-1 ("MW-1") discovery and the surrounding field area. Importantly the Company has analysed all core, electric logs, and production data from wells in the adjacent Horndean field's producing Great Oolite limestone reservoir. It is the Company's view that Horndean provides the closest and best model for the likely performance of the Markwells Wood field. In addition to the Company's studies, Xodus constructed a reservoir simulation model of the field calibrated to the MW-1 2012 extended production flow test and core data to derive an alternative viewpoint of the likely range of recoverable volumes.

Xodus has classified the volumes in Table 1 as Contingent Resources, being those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, and where the project is not yet considered mature enough for commercial development due to one or more contingencies. In the case of Markwells Wood the development is contingent on UKOG achieving both internal and external approvals for a Field Development Plan ("FDP") and upon the development being shown to be commercial.

The Company's conceptual field development case evaluated by Xodus assumes a phased development commencing with the drilling of a horizontal sidetrack well, designated MW-1ST. Importantly, Xodus' reservoir simulation results for MW-1ST show that well performance is similar to the performance of nearby Horndean producing wells and the Best Case has a recoverable volume of approximately 400,000 barrels of oil after 20 years and 600,000 barrels after 40 years. The adjacent Horndean field has been producing oil since 1987. The CPR also notes that given the significant Best Case or P50 Stock Tank Oil in Place ("STOIP") of 45.6 MMbbl, further recoverable upside may exist in the field's 3C case once production data is obtained.

Although no economic analysis was conducted by Xodus, the CPR concludes that the expected MW-1ST well performance gives confidence that production from a new well is likely to be commercial. The CPR's 1C volume estimate is, therefore, based on a field development of two new horizontal wells (to include the MW-1ST), whereas the 2C and 3C volume estimates are based on 5 new horizontal wells in the field.

The CPR is available on UKOG's website (see www.ukogplc.com).

Reporting Standards:

The STOIP volumes and Contingent Resources in Xodus' CPR have been prepared in accordance with the 2007 Petroleum Resources Management System prepared by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers (SPE), reviewed, and jointly sponsored by the World Petroleum Council (WPC), the American Association of Petroleum Geologists (AAPG) and the Society of Petroleum Evaluation Engineers (SPEE).

Markwells Wood Future Work and Plans:

The Company is now well advanced with its application to vary the planning permission at the MW-1 well site by extending it for a further 18 months. This planning variation was submitted to the South Downs National Park Authority ("SDNPA") on 16 March 2015 and final signature of the required Deed of Variation to the existing planning consent is expected shortly.

The Company has also commenced work on the Markwells Wood FDP to submit to the Oil and Gas Authority ("OGA") to seek their approval to move the PEDL126 Licence from its current exploration phase into an 18-year production period.

The Markwells Wood FDP will also form the basis of a new planning application to the SDNPA to seek their consent for the proposed Markwells Wood field development. Applications for further regulatory consents from the Environment Agency and Health and Safety Executive will follow upon grant of the SDNPA planning consent.

As part of the FDP, the Company has also commissioned related engineering studies which will draw upon some of the findings of the Horse Hill Portland and tight Jurassic oil play conceptual development study currently being prepared by Xodus and Barton Willmore. These studies will focus on how the field can be developed with minimal footprint and impact to the locality.

The Company has also commissioned well completion studies with Nutech Energy Ltd to investigate how flow from the proposed MW-1ST well could be optimised. This analysis will include the evaluation of new non-fracking well stimulation technology, which could potentially help further reduce the footprint of the field development and may have wider applications to the Company's other interests in undeveloped Weald Basin oil discoveries in Horse Hill and Baxters Copse. It should be noted that the Infrastructure Act prohibits the use of well stimulation via hydraulic fracturing within the South Downs National Park, only conventional well stimulation techniques are permitted.

Additionally, Nutech and the Company will integrate the learnings of the tight Jurassic oil plays gained from the Horse Hill PEDL137 and PEDL246 Licences into the MW-1 well and the PEDL126 licence area.

Stephen Sanderson, UKOG's Chairman, commented:

"The Markwells Wood CPR is an important milestone for the Company.

The CPR has independently validated our internal viewpoint that the Markwells Wood field can likely be developed successfully. Excitingly, this means that, subject to the necessary regulatory consents, the Company can now plan to develop this UK onshore oilfield to add further oil production to its existing producing portfolio.

Secondly, the CPR is the Company's first successful independent audit of recoverable oil volumes that is underpinned by our own internal technical evaluation.

I would like to reiterate that the prime objective of our proposed Markwells Wood field development plan will be to respect and preserve the rural beauty and way of life of the local area, with minimal environmental impact, while at the same time providing a valuable contribution to the area's economy. As previously stated, this is fundamental to the Company's operating philosophy and policy.

I now look forward to testing and refining our new view of Markwells Wood's production potential with the proposed MW-1ST development well as soon as the necessary regulatory consents are in place."

Qualified Person's Statement:

Stephen Sanderson, UKOG's Executive Chairman, who has over 30 years of relevant experience in the oil and gas 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 / Jason Berry Tel: [phone]

WH Ireland (Nominated Adviser and Broker)

James Joyce / Mark Leonard Tel: [phone]

Square 1 Consulting (Public Relations)

David Bick / Mark Longson Tel: [phone]

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September 14, 2015 02:00 ET (06:00 GMT)

Glossary:

 
 2D seismic         seismic data collected using the 
                     two-dimensional common depth point 
                     method 
-----------------  ---------------------------------------------- 
 1C resources       denotes the low estimate scenario 
                     of Contingent Resources 
-----------------  ---------------------------------------------- 
 2C resources       denotes the mid or best estimate 
                     scenario of Contingent Resources 
-----------------  ---------------------------------------------- 
 3C resources       denotes the high estimate scenario 
                     of Contingent Resources 
-----------------  ---------------------------------------------- 
 Contingent         Contingent Resources are those quantities 
  Resources          of petroleum estimated, as of a 
                     given date, to be potentially recoverable 
                     from known accumulations, but the 
                     applied project(s) are not yet considered 
                     mature enough for commercial development 
                     due to one or more contingencies. 
                     Contingent Resources may include, 
                     for example, projects for which 
                     there are currently no viable markets, 
                     or where commercial recovery is 
                     dependent on technology under development, 
                     or where evaluation of the accumulation 
                     is insufficient to clearly assess 
                     commerciality. Contingent Resources 
                     are further categorized in accordance 
                     with the level of certainty associated 
                     with the estimates and may be sub-classified 
                     based on project maturity and/or 
                     characterized by their economic 
                     status 
-----------------  ---------------------------------------------- 
 core               a continuous cylindrical sample 
                     of rock from the wellbore normally 
                     taken in 30 ft sections 
-----------------  ---------------------------------------------- 
 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 
-----------------  ---------------------------------------------- 
 electric logs      tools used within the wellbore to 
                     measure the rock and fluid properties 
                     of surrounding rock formations 
-----------------  ---------------------------------------------- 
 flow test          a flow test or well test involves 
                     testing a well by flowing hydrocarbons 
                     to surface, typically 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 hydrocarbons 
                     at a commercial flow rate 
-----------------  ---------------------------------------------- 
 Horizontal         a high-angle well (with an inclination 
  well               of generally greater than 85deg) 
                     drilled to enhance reservoir performance 
                     by placing a long wellbore section 
                     within the reservoir. 
-----------------  ---------------------------------------------- 
 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 
-----------------  ---------------------------------------------- 
 oil field          an accumulation, pool or group of 
                     pools of oil in the subsurface. 
                     An oil field consists of a reservoir 
                     in a shape that will trap hydrocarbons 
                     and that is covered by an impermeable 
                     or sealing rock 
-----------------  ---------------------------------------------- 
 oil in place       the quantity of oil or petroleum 
  or stock tank      that is estimated to exist originally 
  oil in place       in naturally occurring accumulations 
                     before any extraction or production 
-----------------  ---------------------------------------------- 
 oolite             oolite is a sedimentary rock formed 
                     from ooids, being spherical grains 
                     comprised of concentric layers of 
                     calcium carbonate and of diameter 
                     0.25-2 mm. Ooids are usually formed 
                     in warm, supersaturated, shallow, 
                     highly agitated marine water intertidal 
                     environments such as the present 
                     day Bahama Banks 
-----------------  ---------------------------------------------- 
 P10                a 10% probability that a stated 
                     volume will be equalled or exceeded 
-----------------  ---------------------------------------------- 
 P50                a 50% probability that a stated 
                     volume will be equalled or exceeded 
-----------------  ---------------------------------------------- 
 P90                a 90% probability that a stated 
                     volume will be equalled or exceeded 
-----------------  ---------------------------------------------- 
 petrophysics       the study of physical and chemical 
                     rock properties and their interactions 
                     with fluids utilising electric logs, 
                     physical rock and fluid measurements 
-----------------  ---------------------------------------------- 
 play               a set of known or postulated oil 
                     and or gas accumulations sharing 
                     similar geologic, geographic, and 
                     temporal properties, such as source 
                     rock, migration pathways, timing, 
                     trapping mechanism, and hydrocarbon 
                     type 
-----------------  ---------------------------------------------- 
 recoverable        those quantities of petroleum (oil 
  resources          in this case) estimated, as of a 
                     given date, to be potentially recoverable 
                     from known accumulations 
-----------------  ---------------------------------------------- 
 reservoir          a subsurface rock formation containing 
                     an individual natural accumulation 
                     of moveable petroleum 
-----------------  ---------------------------------------------- 
 sidetrack          re-entry of a well from the well's 
                     surface location with drilling equipment 
                     for the purpose of deviating from 
                     the existing well bore to achieve 
                     production or well data from an 
                     alternative zone or bottom hole 
                     location, or to remedy an engineering 
                     problem encountered in the existing 
                     well bore 
-----------------  ---------------------------------------------- 
 tight oil          a play where oil is found or expected 
  play               to be present within a reservoir 
                     with low permeability, i.e. a tight 
                     reservoir. The term, in the case 
                     of HH-1, is applied to a play where 
                     trapped petroleum accumulations 
                     are expected to be pervasive throughout 
                     a large area and that are not significantly 
                     affected by hydrodynamic influences 
                     (also called "continuous-type deposits") 
-----------------  ---------------------------------------------- 
 well stimulation   well stimulation is a well intervention 
                     performed on an oil or gas well 
                     to increase production by improving 
                     the flow of hydrocarbons from the 
                     drainage area into the well bore. 
-----------------  ---------------------------------------------- 
 

Notes to Editors:

The Company has the following Production, Development, Appraisal and Exploration Assets in the UK Onshore Sector:

 
     Asset       Licence      UKOG         Licence          Operator        Area     Status 
                             Interest       Holder                          (km(2) 
                                                                              ) 
--------------  ---------  ----------  ---------------  ----------------  --------  ------------------------- 
                                                                                     Awaiting announcement 
                                                                                      of 14th Round 
                                                                                      awards. UKOG 
                                                                                      has applied for 
   Offshore                                  UKOG                                     the adjacent 
      Isle                                  Solent                                    200 km sq onshore 
    of Wight      P1916       77.5%         Limited           UKOG          46.7      acreage. 

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September 14, 2015 02:00 ET (06:00 GMT)