UK Oil & Gas PLC Portland Declared Commercially Viable (4111E)

TIDMUKOG

RNS Number : 4111E

UK Oil & Gas PLC

18 October 2018

UK Oil & Gas PLC

("UKOG" or the "Company")

Horse Hill Portland Oil Field Declared Commercially Viable

Horse Hill-1 ("HH-1") Portland and Kimmeridge Oil Discovery, Weald Basin, UK

UK Oil & Gas PLC (London AIM: UKOG) announces that Horse Hill Developments ("HHDL"), a UKOG subsidiary company and the operator of the HH-1 Kimmeridge Limestone and conventional Portland Sandstone oil discovery, has informed the Company that, following the successful Portland Extended Well Test ("EWT") programme, it now considers the Portland oil field to be commercially viable.

HHDL now targets the start-up of long term Portland oil production during 2019, subject to the grant of necessary regulatory consents. The first future horizontal production well, HH-2, for which planning and Environment Agency consents are in place, is planned to be drilled in early 2019. HH-1 is located in licence PEDL137 in which UKOG holds a 46.735% beneficial interest. Key points and further details are summarised below:

Key Points:

-- Following analysis of EWT results and economic modelling of HHDL's and Xodus Group's ("Xodus") forecast oil production profiles, HHDL now considers the Portland oil field to be commercially viable. Work is now underway towards a targeted long-term production start-up in 2019.

-- HHDL currently envisages the Portland field development plan to consist of up to 3 production wells and up to 2 pressure support wells.

-- A planning application for Portland and Kimmeridge field development is nearing completion and is targeted for submission to Surrey County Council ("SCC") before year-end.

-- Xodus' calculated future Portland oil production profiles, based upon observed pressure and volumetric data from the EWT, show that oil recoveries of up to 45% of connected Oil in Place could be attained if a successful full voidage replacement pressure support scheme is incorporated into the field's development.

-- The Portland field's first new horizontal production well, HH-2, which has SCC planning and Environment Agency consents, is planned to spud in early 2019 following completion of the Kimmeridge Limestone 4 EWT.

-- As reported on 10 September, the HH-2 horizontal well has a targeted* sustainable daily Portland production rate of 720 to 1,080 bopd, 2 to 3 times the calculated* sustainable vertical well rate of 362 bopd derived from the EWT programme.

-- Following submission of the planning application, Xodus' 2018 Portland Competent Persons Report will be updated to include recoverable reserves and net present values of cash flows associated with the envisaged Portland oil field development.

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

Stephen Sanderson, UKOG's Chief Executive, commented:

"HHDL's declaration of Portland commercial viability is a significant milestone for the Company. It transforms Horse Hill from solely exploration into a fully-fledged field development with a full-scale oil production start-up targeted in 2019.

The better than expected EWT results have robustly demonstrated that the Portland has significant daily production potential in its own right, which could see the first planned horizontal producer attain sustained oil rates of 720-1,080 bopd. If realised, these rates could make the Horse Hill Portland oil field one of the UK onshore's top producers.

We also eagerly anticipate the possibility of combined long-term production from both the Portland and Kimmeridge, an exciting and potentially transformational prospect for Horse Hill and the Company."

About Xodus

Xodus is 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

Matt Cartwright, UKOG's Chief Operating Officer, who has over 35 years of relevant experience in the oil industry, has approved the information contained in this announcement. Mr Cartwright is a Chartered Engineer and member of the Society of Petroleum Engineers.

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]

Novum Securities (Joint Broker)

John Bellis Tel: [phone]

Public Relations

Brian Alexander / David Bick Tel: [phone]

Glossary

 
 depletion-drive           a natural mechanism whereby the differential pressure 
                            between the wellbore and reservoir permits dissolved 
                            solution gas to expand and become an energy support 
                            to create oil flow into a well. It is also known 
                            as solution gas drive or dissolved gas drive. 
 connected oil             a volume of OIP that is demonstrated by collected 
  in place                  pressure and flow data to be directly accessed 
                            and drained by a well during production. Only 
                            part (or a fraction) of the volume, known as the 
                            recoverable volume, will normally be recovered 
                            to surface during oil production. The percentage 
                            of the recoverable volume compared to the total 
                            connected OIP is known as the recovery factor. 
                          --------------------------------------------------------- 
 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 
                          --------------------------------------------------------- 
 extended well             a well 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 
                          --------------------------------------------------------- 
 oil in place              the quantity of oil or petroleum that is estimated 
  ("OIP")                   to exist in naturally occurring accumulations. 
                          --------------------------------------------------------- 
 pressure support          maintenance of reservoir pressure as close to 
  or voidage replacement    virgin reservoir pressure as possible and above 
                            bubble point via injection of saline formation 
                            water into the reservoir. The injected water increases 
                            oil recovery via maintaining maximum depletion 
                            drive energy (see above) and displacing oil from 
                            reservoir pores towards the wellbore. The mechanism 
                            is also referred to as voidage replacement. Full 
                            pressure support or "full voidage replacement" 
                            means that the overall volume of saline formation 
                            water injected is equal to the volume of oil extracted. 
                          --------------------------------------------------------- 
 recoverable               those quantities of petroleum (oil in this case) 
  volumes or resources      estimated, as of 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 
                          --------------------------------------------------------- 
 

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 
 (4)                PEDL234      100%         Ltd (4)           Ltd (4)         300.0     application approved 
-----------------             ----------  --------------  ------------------  --------  ---------------------- 
                                                                                           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)                                                                           and Arreton South 
 (2, 3)             PEDL331       65%          UKOG              UKOG           200.0       exploration 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 in 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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October 18, 2018 02:01 ET (06:01 GMT)