UK Oil & Gas Investments PLC OGA Grants Approval for EWT Programme (2806R)

TIDMUKOG

RNS Number : 2806R

UK Oil & Gas Investments PLC

14 June 2018

UK Oil & Gas Investments PLC

("UKOG" or the "Company")

UK Oil and Gas Authority ("OGA") Grants Approval for Extended Flow Test ("EWT") Programme

Horse Hill-1 Kimmeridge and Portland Oil Discovery, Weald Basin, UK

Highlights:

   --     Planned 150-day production EWT set to commence on Horse Hill oil discovery. 
   --     All EWT regulatory permissions now in place and EWT operations are fully funded. 

-- The EWT follows the successful short-term 2016 flow tests which achieved an aggregate stable rate of 1,688 barrels of oil per day ("bopd") over three 30-90 hour test periods.

-- EWT comprises 3 separate long-term flow periods of the oil productive Portland, Kimmeridge Limestone 4 ("KL4") and Kimmeridge Limestone 3 ("KL3") zones.

-- Programme aims to confirm commerciality of Portland and Kimmeridge Limestone oil discoveries and gear-up for first permanent oil production targeted in 2019.

-- Targeted drilling of HH-2 appraisal well as future producer to follow a successful EWT outcome. Planning approval and environmental permits for drilling are in place.

UK Oil & Gas Investments PLC (London AIM: UKOG) is pleased to announce that it has been informed by Horse Hill Developments Ltd ("HHDL"), the operator of the Horse Hill-1 ("HH-1") KL3, KL4 and Portland oil discovery, in which the Company holds a 32.435% interest, that the OGA has granted its consent for the forthcoming HH-1 EWT programme. All other necessary regulatory consents from Surrey County Council ("SCC"), the Environment Agency ("EA") and the Health and Safety Executive are in place. The Company has funded its full share of operational EWT costs. Commencement of the EWT, expected shortly, will be announced in due course.

Stephen Sanderson, UKOG's Executive Chairman, commented:

"Horse Hill is the first in a series of planned near-continuous appraisal drilling and testing operations designed to convert the company's recoverable resources into permanent production and reserves.

UKOG remains confident that the comprehensive long-term flow testing campaign will provide the necessary data to fully assess Horse Hill's commerciality and, most importantly, help meet our corporate target of first stable oil production and significant positive cash flow in 2019."

Horse Hill Oil Discovery

The HH-1 Portland sandstone and KL3 and KL4 oil discoveries lie within onshore Weald Basin licences PEDL137 and PEDL246, covering an area of 55 square miles (143 km(2) ) north of Gatwick Airport. As reported on 21 March 2016, HH-1 flow tested at a significant commercial aggregate stable dry oil rate of 1,688 barrels of oil per day ("bopd") from the Portland, KL3 and KL4 reservoir horizons. Over the 30-90 hour flow periods from each of the 3 zones, no clear indication of any reservoir pressure depletion was observed.

EWT Overview

The EWT will comprise a series of three separate test sequences commencing in the Portland followed by the KL4 and finally, the deeper KL3. If time permits a test combining the KL4 and KL3 (a commingled test) may be undertaken. Each test will utilise existing perforated zones as per the 2016 test programme. The expected duration of the full flow programme is around 150 days.

As the 2016 short flow test campaign established commercially viable initial flow rates for each of the Portland, KL4 and KL3 zones, the 2018 long-term testing programme's goal is to determine commerciality by confirming that HH-1's reservoirs are each connected to a commercially viable oil volume.

It is expected that, should the minimum commercial volume threshold be met or exceeded, a declaration of commerciality for each horizon could be made in a timely mannerafter the completion of each testing sequence.

Given a positive Portland and Kimmeridge test outcome at Horse Hill, it is expected that a Competent Person's Report covering Kimmeridge resources and an updated Portland recoverable resources/reserves will be undertaken in due course.

Portland Test

As per the 2016 test, which flowed oil from the Portland at a stable metered rate of 323 bopd over an 8.5 hour period, a linear rod-pump will be utilised to flow Portland oil from around 35 metres of existing perforations located at around 615 metres below surface. As the 2016 test rates were constrained by the pump's capacity, the new test will use a larger pump with a capacity of around 475 bopd.

Given the currently estimated low Portland production costs of around $20-25 per barrel, the 32 million barrels most likely Portland oil in place calculated by Xodus in 2017, together with the good flow rates recorded in 2016, the Company believes that the Portland is a strong candidate for commercial viability. Consequently, subject to a successful test outcome, the Company is targeting an assessment of Portland commerciality in Q3 2018.

KL3 and KL4 Tests

The planned Kimmeridge programme is designed to build upon the short stabilised natural flow periods of the 2016 test campaign, which tested at an aggregate stable dry oil rate of 1,365 bopd, comprised of 901 bopd and 464 bopd from the KL4 and KL3 zones respectively. The 2016 dry oil rates were recorded over 4-7.5 hour stabilised flow periods through restricted choke settings of 1" and 1/2 " respectively.

The two 2018 long term Kimmeridge tests will utilise existing perforations and will access around a 30 metre gross reservoir zone in each of the KL3 and KL4 zones, located at around 840 and 900 metres below surface respectively. As well as determining the volume of Kimmeridge oil in contact with the wellbore, the testing programme is designed to assess whether the Kimmeridge is one large single reservoir where both KL3 and KL4 are connected by natural fractures within the encasing oil generative shales.

Furthermore, the long term Kimmeridge reservoir performance data is expected to provide the necessary data to enable, for the first time, Petroleum Resources Management System compliant Kimmeridge limestone reserve and resource figures to be estimated at Horse Hill and, by analogy, for the wider Kimmeridge play.

Future Drilling and Production Plans

Subject to a successful testing outcome in the Kimmeridge and Portland, the HH-2 appraisal well is planned to immediately follow the EWT in late 2018/early 2019. The well will be drilled as a future Portland production well. Drilling plans include optionality to deepen HH-2 into the Kimmeridge to gather core and image log data, together with a possible northwards deviation to access the adjacent oil bearing Collendean Farm fault block's significant Portland oil resources.

Similarly, contingent upon EWT success, an HH-1z Kimmeridge sidetrack spud is planned in 2019 following integration of HH-1 Kimmeridge production data into a reservoir model and data from any future HH-2 Kimmeridge core. Necessary Planning and EA permits for HH-2 and HH-1z are in place.

To achieve its goal of stable, long-term Horse Hill oil production during 2019, HHDL now plans to submit a further production planning application to SCC in summer 2018. This application will seek consent to produce oil initially from HH-1 & 1z, and HH-2, together with further production wells in a second contingent drilling phase.

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 / Neil McDonald Tel: [phone]

Public Relations

Brian Alexander / David Bick Tel: [phone]

Glossary:

 
 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 
------------  ------------------------------------------ 
 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 
------------  ------------------------------------------ 
 pump stroke   in a rod pump the product of the 
  capacity      rod cross-sectional area, maximum 
                distance between the top and bottom 
                of the rod stroke movement and 
                the pump stroking speed 
------------  ------------------------------------------ 
 recoverable   those quantities of petroleum (oil 
  volumes or    in this case) estimated, as of 
  resources     a given date, to be potentially 
                recoverable from known accumulations 
------------  ------------------------------------------ 
 reserves      those quantities of petroleum anticipated 

                to be commercially recoverable 
                by application of development projects 
                to known accumulations from a given 
                date forward under defined conditions. 
                Reserves must further satisfy four 
                criteria: they must be discovered, 
                recoverable, commercial, and remaining 
                (as of the evaluation date) based 
                on the development project(s) applied. 
                Reserves are further categorised 
                in accordance with the level of 
                certainty associated with the estimates 
                and may be sub-classified based 
                on project maturity and/or characterised 
                by development and production status 
------------  ------------------------------------------ 
 sandstone     a clastic sedimentary rock whose 
                grains are predominantly sand-sized. 
                The term is commonly used to imply 
                consolidated sand or a rock made 
                of predominantly quartz sand. 
------------  ------------------------------------------ 
 

UKOG Licence Interests

The Company has interests in the following UK licences:

 
Asset              Licence        UKOG's       Licence Holder      Operator      Area (km(2) )          Status 
                                 Interest 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
                                                 UKOG (GB)       IGas Energy                     Field currently shut 
Avington (1)       PEDL070          5%            Limited            Plc             18.3                 in 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
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 completed, 
(3)                                            & Gas Limited    & Gas Limited                    preparing two further 
                                                    (4)              (4)                         planning applications 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
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        Production tests and 
                                                Developments     Developments                      further appraisal 
                                                    Ltd              Ltd                         well(s) scheduled for 
                                                                                                         2018 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
                                                 Horse Hill       Horse Hill 
                                                Developments     Developments 
Horse Hill (5)     PEDL246       32.435%            Ltd              Ltd             43.6              As above 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
Isle of Wight      PEDL331         65%              UKOG             UKOG            200.0        Preparing Arreton-3 
 (Onshore) (2,                                                                                       oil discovery 
 3)                                                                                                 appraisal well 
                                                                                                  planning submission 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
Markwells Wood     PEDL126         100%          UKOG (GB)        UKOG (GB)          11.2        Revised drilling and 
 (2)                                              Limited          Limited                         testing planning 
                                                                                                 application underway 
----------------  ---------  ---------------  ---------------  ---------------  --------------  ---------------------- 
 

Notes:

1. Oil field currently in production.

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

3. Exploration asset with drillable prospects and leads. PEDL234 contains the Broadford Bridge-1 and 1z

discovery well, the extension of the Godley Bridge Portland gas discovery plus further exploration

prospects.

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

5. Oil discovery with successful flow test in 3 zones, further long-term testing scheduled in 2018

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 news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

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June 14, 2018 07:30 ET (11:30 GMT)