Horse Hill-1 Flow Test

UK Oil & Gas Investments PLC

("UKOG" or the "Company")

 

Horse Hill-1 Oil Discovery, Weald Basin, UK

 

 Aggregate Flow Rate Likely the Highest of any UK Onshore New Field Discovery Well

 

UK Oil & Gas Investments PLC (London AIM and ISDX: UKOG) announces that Horse Hill Developments Ltd has informed the Company that the final Horse Hill 1 ('HH-1') Portland test flowed at a stable dry oil rate of 323 barrels of oil per day ('bopd'), double the previously reported rate. The final total aggregate stable dry oil flow rate from two Kimmeridge limestones plus the overlying Portland sandstone stands at 1688 bopd. Over the 30-90 hour flow periods from each of the 3 zones, no clear indication of any reservoir pressure depletion was observed. Further analysis of data is ongoing and will be reported shortly.

Way Forward

Given these exceptional results, the Company has commissioned Nutech to investigate a possible upgrade to the oil in place ("OIP") calculated within all 3 test zones together with engineering studies to examine possible flow rates from a horizontal well. Reservoir engineering analyses by Nutech and Xodus are also underway, and will likely result in an estimation of potential recoverable volumes. Results of these studies will be reported shortly.

Preparation is now underway to obtain regulatory permissions to conduct extended production tests from all 3 zones at the site, followed by a horizontal sidetrack in the Kimmeridge and a possible new Portland development well.

Flow Test Highlights

·     The final Portland test of 323 bopd, over an 8.5-hour, period is the highest stable dry oil flow rate from any onshore UK Portland well. On further testing, with a larger pump, the rate doubled from the previously reported stable dry oil rate of 168 bopd. The Portland was produced at maximum pump capacity and showed no clear indication of depletion. It is likely that the rate can be further increased using a higher capacity downhole pump during the next planned test.

·     Proof that the Kimmeridge limestones contain significant volumes of moveable light oil that can be flowed to surface at commercial rates

·     As previously reported, the stable, natural dry-oil flow rate of 464 bopd from the Lower Kimmeridge Limestone is the first ever flow from this rock unit in the Weald Basin and onshore UK

 

·     Based on the analysis of published reports from all significant UK onshore discovery wells, the Company concludes that the well's 1688 bopd is likely the highest aggregate stable dry-oil flow from any onshore UK new field wildcat discovery well

 

·     Based on the analysis of published reports from all significant UK onshore discovery wells, the Company concludes that the 901 bopd from the Upper Kimmeridge zone is likely the highest stable natural dry oil flow rate from a single reservoir in any UK onshore new field wildcat discovery well

 

·     High quality Brent Crude produced: light, sweet oil (40 degrees API in Kimmeridge, 35-37 degrees API in Portland) 1,940 barrels delivered to the Esso Fawley refinery

·     Preliminary analysis confirms that the Lower and Upper Kimmeridge Limestone units are naturally fractured reservoirs with high deliverability

·     Strong possibility for further optimisation and increased flow rates from all 3 zones in future development and production wells, particularly through the use of horizontal wells

 

Summary Table of Test Results

Zone	Maximum Instantaneous Oil Rate	Stabilised Dry Oil Rate	Perforated Interval	Stabilised Flow Period	Depth Below Surface
	bopd	bopd	ft	hours	ft
U. Portland *	360	323	103	8.5	2000
U. Kimmeridge **	1008	901	88	4.0	2800
L. Kimmeridge **	700	464	80	7.5	2950
Total	2068	1688	271
Note: * flow rate limited by pump stroke rate capacity ** natural flow

 

Final Portland Flow Test

As previously reported, the first Portland test period gave a stable dry oil rate of 168 bopd over 9 hours. Further periods of flow using the same pump, re-seated immediately above the perforated zone, resulted in a similar stable dry oil flow over a two-day period. It was apparent that the rate was limited by the 7-ft stroke capacity of the pump. A larger 26-ft stroke pump was installed resulting in a maximum rate in excess of 360 bopd and an average stable rate of 323 bopd over 8.5 hours. This flow rate was still limited by pump capacity. During pumping, annulus fluid levels did not drop appreciably, implying little pressure depletion.

HH-1 Overview and Recap

The HH-1 discovery well, completed in November 2014, was the first modern well since the 1980s to test the entire Jurassic and Triassic section of the Weald Basin, reaching Palaeozoic basement at circa 8500 feet. The well was drilled with oil-based mud to ensure good electric log data collection. A comprehensive suite of modern Schlumberger log data, including magnetic resonance data, was acquired. Geological samples were collected at 10 ft intervals throughout the well specifically for geochemical analysis.

The analysis of thermal maturity data (vitrinite reflectance) from geological samples, by a leading analyst in Switzerland, showed that the Kimmeridge section of the well was within the peak oil generative window. Previous researchers had stated that the Kimmeridge was thermally immature, and whilst recognised to be the time equivalent of the North Sea's main oil source rock, had likely only generated either early stage immoveable bitumen or minor quantities of moveable oil, as seen in the Upper Kimmeridge Limestone in Balcombe-1, 15 km to the south of HH-1.

As previously announced, geochemical analysis of samples throughout the c. 1300 ft thick Kimmeridge shale section of HH-1, showed that the shales comprised a world class oil source rock. Analysis of 277 samples showed 780 ft of drilled section exceeding 2% total organic carbon ("TOC") by weight, with an average of 4.1% TOC. The richest section, and possible sweet-spot, lay between the Upper and Lower Kimmeridge Limestones with an average of 5% TOC and a high of 9.4% TOC. The organic shales demonstrated high oil generative potentials ranging from an average of 35 kg/tonne to a high of 103 kg/tonne and with high Hydrogen Indices ("HI") averaging 754. Further significant potential source rock sections were identified in the Middle Jurassic and Lias sections of the well.

Both Nutech and Schlumberger, leaders in the field of electric log analysis in rocks with low permeabilities, were then engaged to investigate the presence of oil in the HH-1 well. The Company reported the results during 2015, which indicated that a mean estimated total of between 9.97 and 10.99 billion barrels of OIP, or oil in the ground, existed under the HH-1 licence area, contained in shales and limestones of the Kimmeridge, Oxford Clay and Lias.

As previously stated by the Company, it is emphasised that the above estimated OIP volumes should not be construed as recoverable resources, contingent or prospective resources.

The Kimmeridge flow test programme was designed to test the concept that significant moveable oil had been generated within the Kimmeridge shales and had migrated directly into the more permeable and porous, naturally fractured limestones. Some degree of oil generation from thin interbedded organic rich layers within the limestones was also predicted. The limestones were also targeted for their suitability for conventional well stimulation methods to help improve flow. The use of massive fracking in the Kimmeridge is currently prohibited by UK law as the formation in HH-1 is shallower than the UK government's 1000 metre (~3300 ft) massive-fracking ceiling.

Both Nutech's and in-house petrophysical analyses demonstrated that a conventional oil accumulation lay within the Upper Portland sandstone of the HH-1 well. Xodus calculated an estimated P50 OIP of 21 million barrels for the accumulation. Electric log analysis showed that the well had circa 100 feet of gross pay with water saturations often exceeding 50%. The flow test results of 100% dry oil thus require the log evaluation to be revisited and to review a possible upgrade to the OIP. Xodus will integrate this with the available flow test analyses to derive recoverable Portland resources. This will be reported in due course.

Stephen Sanderson, UKOG's Executive Chairman, commented:

"The flow test results are outstanding, demonstrating North Sea-like oil rates from an onshore well. This simple vertical well has achieved an impressive aggregate oil rate equivalent to 8.5% of total UK onshore daily oil production. The Portland also has greater flow potential as rates were limited by the test pump's maximum capacity. Further significant flow rate improvements may be achieved from all zones using horizontal sidetracks during future planned operations.

These results also cause us to rethink and recalibrate many prior geological assumptions. Nutech will now reinvestigate the presence of significant natural fracturing and oil in place figures for both the Portland and Kimmeridge units given that all flow periods produced 100% dry oil.

Most importantly, this well has proven that the new Kimmeridge oil play is a reality within our Licence interests. Whilst there is still much work to be done, this test has moved the project into a potential commercial reality. The Horse Hill licence owners remain committed to ensuring that any resultant future commercial operations will respect the rural beauty of the Weald basin and the way of life of local residents.

In a wider sense, whilst it is absolutely correct for us all to press for low cost, renewable sources of electrical energy, we must be mindful that oil fills a very different strategic role. Oil is not used for electrical power generation but fuels all transport and the manufacture of essential everyday products, such as plastics and pharmaceuticals. Oil provides the vital feedstock for components that are essential for all industrial sectors. We are delighted, therefore, that this discovery has the serious prospect of being a meaningful addition to the UK's own supply of oil in a period where North Sea production is declining more rapidly than expected."

Horse Hill-1 Discovery Well Location and Licence

The well is located within onshore exploration Licence PEDL137, on the northern side of the Weald Basin near Gatwick Airport. UKOG owns a 19.968% interest in PEDL137.

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 / Jason Berry                                                                             Tel: 020 7440 0640

 

WH Ireland (Nominated Adviser and Broker)

James Joyce / Mark Leonard                                                                                      Tel: 020 7220 1666

 

Square 1 Consulting (Public Relations)

David Bick / Brian Alexander                                                                                      Tel: 020 7929 5599

 

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
degree API	a measure of the density of crude oil, as defined by the American Petroleum Institute
electric logs	tools used within the wellbore to measure the rock and fluid properties of surrounding rock formations
extended flow test	a flow test, as per the permission granted by 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
generative potential (S2)	the amount of hydrocarbons that can be generated from a unit volume of source rock established via the S2 peak from rock-eval pyrolysis, normally expressed in milligrams of hydrocarbon per gram of rock (or kilogram per tonne)
horizontal wells	wells that during drilling are steered so as to be at or close to 90 degrees from the vertical to follow a particular geological stratum or reservoir unit
hydrogen index (HI)	the amount of hydrogen relative to the amount of organic carbon in a sample, normally expressed in milligrams of hydrogen per gram of TOC. The higher the amount of hydrogen the more oil prone the source rock when subjected to time temperature and pressure; an initial HI over 450 normally indicates an oil prone source rock
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
magnetic resonance	a phenomenon by which a nucleus absorbs electromagnetic radiation of a specific frequency in the presence of a strong magnetic field; it is used in modern electric logs
mean	or expected value, is the probability-weighted average of all possible values and is a measure of the central tendency either of a probability distribution or of the random variable characterised by that distribution
moveable oil	oil that can flow or be pumped to the surface
naturally fractured reservoirs	fractured reservoirs contain cracks or surface of breakage within rock; fractures can enhance permeability of rocks greatly by connecting pores together; naturally fractured reservoirs have been created over geological time by nature, not man-made via hydraulic fracturing
organic rich	a rock rich in organic matter which, if subjected to sufficient heat and pressure over geological time, will generate oil or gas.  Typical source rocks, usually shale or limestone, contain above an initial 2% organic matter by weight
P50	a 50% probability that a stated volume will be equalled or exceeded
peak oil generative window	a vitrinite reflectance (Ro) measurement of 0.5-0.7%, indicating conditions that are thermally mature to generate moveable oil
permeability	the capability of a porous rock or sediment to permit the flow of fluids through its pore spaces
pump stroke capacity	in a rod pump the product of the rod cross-sectional area, maximum distance between the top and bottom of the rod stroke movement and the pump stroking speed
recoverable volumes	a rock rich in organic matter which, if subjected to sufficient heat and pressure over geological time, will generate oil or gas.  Typical source rocks, usually shale or limestone, contain above an initial 1% organic matter by weight
reservoir deliverability	the fluid production rate that can be achieved from a particular reservoir or reservoir unit
reservoir pressure depletion	a reduction in reservoir pressure as indicated by downhole pressure gauges positioned in the well close to the zone being tested
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
source rock	a rock rich in organic matter which, if subjected to sufficient heat and pressure over geological time, will generate oil or gas. Typical source rocks, usually shale or limestone, contain above an initial 1% organic matter by weight
thermal maturity	a term applied to source rocks which have received sufficient temperature and pressure over geological time to generate hydrocarbons
total organic carbon	the weight percentage of organic carbon within the rock which is a commonly used measure of hydrocarbon source rock richness
vitrinite reflectance	a measure of the percentage of incident light reflected from the surface of vitrinite particles in a sedimentary rock.  It is referred to as % Ro and is a measure of the thermal maturity of a rock. Top of the oil window is dependent on source rock type, but is widely recognised to be at an Ro equivalent of between 0.5-0.7%.
wildcat	an exploration well in an unproven geological concept, rock unit or area

 

Notes to Editors:

The Company has interests in the following UK licences:

Asset	Licence	UKOG's Interest	Licence Holder	Operator	Area (km2)	Status
Avington 1	PEDL070	5%	UKOG (GB) Limited	IGas Energy Plc	18.3	Field in stable production.
Baxters Copse 2	PEDL233	50%	UKOG Weald Limited	IGas Energy Plc	89.6	Reviewing economics of appraisal/ development well.
Brockham 1	PL234	3.6%	Angus Energy 5	Angus Energy 5	8.9	Drilling of sidetrack well being considered.
Holmwood 3	PEDL143	30%	UKOG	Europa Oil & Gas (Holdings) plc	91.8	H-1 exploration commitment well planned.
Horndean 1	PL211	10%	UKOG (GB) Limited	IGas Energy Plc	27.3	Field in stable production.
Horse Hill 4	PEDL137	19.968%	Horse Hill Developments Ltd 6	Horse Hill Developments Ltd 6	99.3	Extended flow testing of HH-1.
Horse Hill 4	PEDL246	19.968%	Horse Hill Developments Ltd 6	Horse Hill Developments Ltd 6	43.6	Extended flow testing of HH-1.
Isle of Wight (Offshore) 3	P1916	77.5%	UKOG Solent Limited	UKOG Solent Limited	46.7	Preparing drilling planning submission.
Isle of Wight (Onshore) 2, 3	PEDL331	65%	UKOG	TBA	200.0	Preparing drilling planning submission.
Lidsey 1	PL241	4.2%	Angus Energy 5	Angus Energy 5	5.3	Drilling of infill well being considered.
Markwells Wood 2	PEDL126	100%	UKOG (GB) Limited	UKOG (GB) Limited	11.2	Compiling Field Development Plan.

 

Notes:

1. Oil field currently in production.

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

3. Exploration asset with drillable prospects and leads.

4. Oil discovery with recently completed flow testing.

5. UKOG has a 6% interest in Angus Energy, which has a 70% interest in Lidsey and a 60% interest in Brockham.

6. UKOG has a direct 30% interest in HHDL, plus an indirect 0.72% interest via Angus Energy; HHDL has a 65% interest in PEDL137 and PEDL246.