UK Oil & Gas PLC EWT Updates, Portland & Kimmeridge Oil Discovery (2898A)

TIDMUKOG

RNS Number : 2898A

UK Oil & Gas PLC

10 September 2018

UK Oil & Gas PLC

("UKOG" or the "Company")

Portland extended well test ("EWT") successfully completed, Kimmeridge EWT to commence

Horse Hill-1 ("HH-1") Portland and Kimmeridge oil discovery, Weald Basin, UK

Key Points:

-- Final HH-1 Portland flow test sequence successfully completed. all Portland operational objectives achieved.

-- Successful Portland re-perforation programme targeted 114 feet of oil pay, adding 14 feet of new pay. Following re-perforation, well productivity increased by up to 65%.

-- Independent oil consultants Xodus Group's ("Xodus") analysis of flow and pressure data interprets that further HH-1 Portland vertical well optimisation could achieve a forecast sustainable initial 24/7 pumped rate of around 362 barrels of oil per day ("bopd")* when full scale long-term production commences, exceeding original estimates. This analysis is key as it establishes the absolute flow potential of the Portland reservoir for future production wells.

-- Given the knowledge of the Portland's true flow potential, plans are now being formulated to drill either the HH-1z sidetrack or HH-2 new drill as a horizontal Portland appraisal well, with a targeted* sustainable daily production rate of 720 to 1,080 bopd, 2 to 3 times the forecast calculated* HH-1 vertical well rate of 362 bopd. All planning permissions, Environment Agency permits and the HH-2 well cellar are in place for a horizontal well. If successful it is envisaged that all future Portland production will be via horizontal wells.

-- The Company's economic modelling indicates that HH-1 Portland is robustly commercial at even the lowest observed sustainable daily rate of 140 bopd and at oil prices below $60 per barrel. A formal Horse Hill Developments Ltd ("HHDL") declaration of Portland commerciality is therefore expected shortly following receipt of Xodus' final connected oil volume analysis. A planning application for long term production is planned to be submitted to Surrey County Council shortly, prior to the completion of the forthcoming Kimmeridge EWT programme. Full-scale long-term production, targeted for 2019, is subject to co-venturer and regulatory approvals.

-- All 36deg API Brent quality oil produced during the EWT is "dry", containing only 0.02% water.

-- Preparation for the primary EWT objective, to establish the commerciality of the Kimmeridge Limestone 3 ("KL3") and KL4 oil pools underlying the Portland, has now commenced.

-- Kimmeridge testing will begin in the uppermost KL4 oil pool immediately following the removal of two suspension plugs and installation of a new completion string straddling the two Kimmeridge oil pools.

Note: * There can be no absolute guarantee that forecast, targeted or calculated rates of production will be achieved.

UK Oil & Gas PLC (London AIM: UKOG) announces that HHDL, the operator of the HH-1 Kimmeridge and Portland oil discovery, located in licence PEDL137, in which UKOG holds a 46.735% beneficial interest, has informed the Company that the final Portland EWT sequence has been successfully completed and that all Portland operational test objectives were achieved.

Following a final long duration pressure build up test, preparations for the primary Kimmeridge EWT are now underway. The Kimmeridge EWT's goal is to establish the commerciality of the underlying KL3 and KL4 oil pools, which in 2016 flowed 40deg API crude naturally to surface at an aggregate implied stable dry oil rate of 1,365 bopd. Further updates will be provided as the Kimmeridge EWT progresses.

Stephen Sanderson, UKOG's Chief Executive, commented:

"We are delighted that the HH-1 re-perforation and optimisation programme has resulted in the forecast sustainable Portland production rate of 362 bopd, which significantly exceeds our initial test programme expectations. This high rate, together with our economic modelling, strongly indicates that the HH-1 Portland vertical well is commercially viable and robustly economic at the lowest observed sustainable test rates and the predicted future sustainable production rates. HHDL's internal declaration of Portland commerciality is therefore expected shortly following receipt of Xodus' final connected oil volume analysis.

We also look forward to the near-term prospect of a new Portland horizontal appraisal well attaining a sustainable test rate in early 2019. This commercial result would make the Portland a significant asset and would underpin both the Horse Hill oil discovery's and the Company's future.

In the light of Portland success, we now eagerly anticipate the start of the Kimmeridge test programme, the goal of which is to establish the commerciality of the underlying KL3 and KL4 oil pools which flowed so prolifically in the 2016 short duration test programme."

Additional EWT Information

In order to calculate the Portland oil volume connected to, or "seen by" HH-1, steady state flow conditions were required (i.e. stable; oil rate, gas oil ratio, bottom hole and tubing head pressures). Consequently, post perforation, production was restricted to sustainable 24/7 rates of between 140-160 bopd. It should be noted that these rates do not reflect the Portland's full flow potential that could be achieved either via successful further optimisation of the HH-1 vertical well or a new horizontal production well.

During these sustained flow periods, intermittent natural flow was evident, with metered rates at the separator exceeding the nominal pumped volume by up to 50 bopd, with the highest rate recorded of 191 bopd. Gas rates at the test separator and through the enclosed flare remained broadly constant at around 15,000 cubic feet per day.

Throughout testing, sustained pumped oil rates were recorded with stable bottom hole pressures of around 200 psi below the initial reservoir pressure of around 915 psi. Following shut-in periods, bottom hole pressures recovered rapidly back to initial reservoir pressure, indicating good connectivity within the Portland oil pool. The observed pressure response during the EWT is interpreted to have positive implications for oil recovery efficiency during planned future long-term production.

Appointment of Joint Broker

The Company is pleased to announce that is has appointed Novum Securities Limited as joint broker to the Company with immediate effect.

About Xodus-

Xodus are an international, globally recognised consultancy group providing engineering and advisory services to clients in the oil & gas, LNG, renewables and utilities industries worldwide. They are certified as Competent Persons for the purposes of oil and gas resource and reserve assessments. More details can be found at www.xodusgroup.com

Qualified Person's Statement

Rob Wallace, UKOG's principal technical advisor, who has over 40 years of relevant experience in the oil industry, has approved the information contained in this announcement. Mr Wallace is a Chartered Scientist, Chartered Geologist and Fellow of the Geological Society of London, an active member of the American Association of Petroleum Geologists, a member of the Petroleum Exploration Society of Great Britain and a member of the South African Geophysical Society.

For further information, please contact:

UK Oil & Gas 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 
 degAPI            a measure of the density of crude oil, as defined 
                    by the American Petroleum Institute 
                  ---------------------------------------------------------- 
 extended flow     a flow test, as per the permission granted by 
  test              the Oil and Gas Authority, with an aggregate flow 
                    period duration over all zones of greater than 
                    96 hours and up to 90 days maximum 
                  ---------------------------------------------------------- 
 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 well   a well that during drilling is steered so as to 
                    be at or close to 90 degrees from the vertical 
                    to follow a particular geological stratum or reservoir 
                    unit 
                  ---------------------------------------------------------- 
 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 
                  ---------------------------------------------------------- 

 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 
                  ---------------------------------------------------------- 
 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 original well bore 
                  ---------------------------------------------------------- 
 

UKOG Licence Interests

The Company has interests in the following UK licences:

 
Asset               Licence      UKOG         Licence          Operator         Area              Status 
                                Interest       Holder                           (km(2) 
                                                                                  ) 
Avington                                     UKOG (GB)        IGas Energy                     Field currently 
 (1)                PEDL070       5%          Limited             Plc           18.3              shut in 
-----------------             ----------  --------------  ------------------  --------  -------------------------- 
Broadford                                                                                      BB-1 & 1z oil 
 Bridge                                     UKOG (234)        UKOG (234)                    discovery, planning 
 (3)                PEDL234      100%         Ltd (4)           Ltd (4)         300.0      application submitted 
-----------------             ----------  --------------  ------------------  --------  -------------------------- 
                                                                                             Seeking alternate 
                                                              Europa Oil                       sites to drill 
Holmwood                                                    & Gas (Holdings)                 Holmwood and other 
 (3)                PEDL143       40%          UKOG               plc           91.8        Kimmeridge prospects 
-----------------             ----------  --------------  ------------------  --------  -------------------------- 
Horndean                                     UKOG (GB)        IGas Energy                     Field in stable 
 (1)                 PL211        10%         Limited             Plc           27.3             production 
-----------------             ----------  --------------  ------------------  --------  -------------------------- 
                                                                                             Production tests 
                                                                                             ongoing, 2 further 
                                            Horse Hill        Horse Hill                      appraisal wells 
Horse Hill                                  Developments      Developments                     scheduled for 
 (5)                PEDL137     46.735%         Ltd               Ltd           99.3              2018/19 
-----------------             ----------  --------------  ------------------  --------  -------------------------- 
                                            Horse Hill        Horse Hill 
Horse Hill                                  Developments      Developments 
 (5)                PEDL246     46.735%         Ltd               Ltd           43.6             As above 
-----------------             ----------  --------------  ------------------  --------  -------------------------- 
                                                                                            Preparing planning 
                                                                                               submission for 
                                                                                               Arreton-3 oil 
Isle of                                                                                        appraisal well 
 Wight (Onshore)                                                                          & Arreton S. exploration 
 (2, 3)             PEDL331       65%          UKOG              UKOG           200.0               well 
-----------------             ----------  --------------  ------------------  --------  -------------------------- 
                                                                                             Revised drilling 
Markwells                                    UKOG (GB)         UKOG (GB)                    and testing planning 
 Wood (2)           PEDL126      100%         Limited           Limited         11.2        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

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

prospects.

4. UKOG has a 100% interest in UKOG (234) Ltd, which has a 100% interest in PEDL234.

5. Oil discovery in 3 zones, EWT ongoing, two further wells HH-1z and HH-2 planned end 2018/early 2019

6. UKOG has a direct 71.9% 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.

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September 10, 2018 07:30 ET (11:30 GMT)