Upgrade to Portland Oil Resources, Weald Basin

UK Oil & Gas Investments PLC

 

("UKOG" or the "Company")

 

Upgrade to Portland Oil Resources, Horse Hill Oil Discovery, PEDL137, Weald Basin, UK

 

Highlights

 

·      Xodus calculate Portland sandstone P50 Oil in Place ("OIP") of 32 million barrels ("MMbbl"), a 53% increase from the 21 MMbbl previously reported prior to successful 2016 flow testing

 

·      Gross recoverable Portland 2C Contingent Resources 1.5 MMbbl   

 

·      Net UKOG attributable Portland 2C Contingent Resources 0.5 MMbbl

 

·      Base Case Portland initial oil-rate estimated at 350 barrels of oil per day ("bopd") per well

 

·      Ultimate recovery could be increased by a further 8-14% of OIP via early implementation of a water re-injection scheme. If successful, this could represent a 114%-440% addition to 2C recoverable resources, equating to a further 1.7-6.6 MMbbl gross recoverable, or 0.5-2.1 MMbbl net to the Company

 

·      Work plans now aimed towards Portland long-term production by end 2018

 

 

 

UK Oil & Gas Investments PLC (LSE AIM/ISDX: UKOG) announces that a new Report by Xodus calculates the Horse Hill Portland sandstone conventional oil accumulation, in which the Company holds a 31.2% interest, to contain an OIP of 32 MMbbl, an increase of 53% from the previously reported 21 MMbbl of May 2015. The upgrade results from the incorporation of Nutech's revised petrophysics, as reported in July 2016. As previously stated by the Company, OIP should not be misconstrued as recoverable Contingent Resources or reserves, which are detailed below.

In March 2016 UKOG reported the final Horse Hill-1 ("HH-1") Portland test flowed at a stable dry oil rate of 323 bopd, producing light, sweet, 35 API gravity crude. The Portland was produced at the rod-pump's maximum achievable rate and thus flow was constrained by the pump's mechanical capacity. The test data analyses show no clear indication of depletion.

As a result of further analysis of the Portland flow test data, plus a review of similar producing fields, Xodus now assess the gross recoverable Portland 2C Contingent resources at 1.5 MMbbl. As a result, Company net attributable Portland 2C resources are assessed at 0.5 MMbbl. Calculated OIP and resources reflect oil contained in the entire Portland structure, as penetrated by the HH-1 and Collendean Farm -1 wells.

The Contingent Resource volumes given are those estimated to be attributable to primary recovery from the Portland reservoir. Results utilise a base case of three wells, draining both the Horse Hill and Collendean Farm fault blocks, each well with an initial production rate of 350 bopd.

The report also details that, for a shallow but permeable reservoir, such as the Portland, should a water re-injection scheme be undertaken to provide pressure support in the field's early productive life, it is reasonable to expect a material increment in overall oil recovery. The successful implementation of such a scheme is estimated to lead to the recovery of an additional 8-14% of OIP, equivalent to a further 1.7-6.6 MMbbl of gross recoverable oil, and a further 0.5-2.1 MMbbl net to the Company.

A summary of the Report's results is shown in tables 1 and 2 below. The Report's Executive Summary is also available on the Company's website: www.ukogplc.com 

As previously reported in October 2016, HHDL submitted a planning application to Surrey County Council for an extensive HH-1 appraisal programme, including long-term production testing and a new deviated well, HH-2, designed to access the Portland in both the HH-1 and Collendean Farm-1 proven oil-bearing fault blocks.

Table 1, Portland Sandstone, gross discovered OIP MMbbl:

Horse Hill Discovery	Low (P90)	Best (P50)	High (P10)	Mean
Portland OIP MMbbl	21.5	32.2	47.4	33.5

 

Table 2, Portland Sandstone, gross and net to Company Contingent Resources MMbbl

Horse Hill Portland Sandstone	Gross Field - 100%			Net to UKOG - 31.2%
Resource Category	1C	2C	3C	1C	2C	3C
Recoverable Oil MMbbl (primary recovery only)¹	0.6	1.5	3.6	0.2	0.5	1.1

 

¹ Xodus Report states recovery could likely be improved by a further 8-14% of OIP via an early water re-injection scheme

HH-1 Oil Discovery, Location and Company Interest

The HH-1 oil discovery well is located within onshore exploration Licence PEDL137, on the northern side of the Weald Basin near Gatwick Airport. UKOG owns a 31.2% interest in PEDL137 via its 48% ownership of the licence's operator HHDL.

Stephen Sanderson, UKOG's Executive Chairman, commented:

"I am very encouraged by the report's conclusions, particularly with respect to the significant further oil recovery that could be obtained from a simple water re-injection scheme. Such schemes are typical practice in similar reservoirs in the US, but have not been widely utilised in the Weald Basin. We will aim to buck this trend, instigate such a programme and deliver the associated material monetary reward.

 

Upon the expected grant of the necessary regulatory consents, the Company is fully geared to start long term production testing at Horse Hill, commencing with the Portland. Our aim is to move towards a declaration of commerciality and stable long-term production from the Portland and Kimmeridge Limestones by the end of 2018.

 

Horse Hill is nicely poised to deliver a significant positive impact to the Company. The year ahead will be an exciting one. "

 

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.

Corporate Presentation

 

UKOG's latest Corporate Presentation is now available on the Company's website www.ukogplc.com   

 

For further information, please contact:

 

UK Oil & Gas Investments PLC

Stephen Sanderson / Kiran Morzaria                                                      Tel: 020 7440 0640

 

WH Ireland (Nominated Adviser and Broker)

James Joyce / James Bavister                                                                     Tel: 020 7220 1666

 

Square 1 Consulting (Public Relations)

Brian Alexander / David Bick                                                                      Tel: 020 7929 5599

 

Glossary:

1C	denotes the low estimate scenario of Contingent Resources
2C	denotes the mid or best estimate scenario of Contingent Resources
3C	denotes the high estimate scenario of Contingent Resources
Contingent Resources	Contingent Resources are those quantities 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 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 their economic status.
degree API	a measure of the density of crude oil, as defined by the American Petroleum Institute
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
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
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
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
oil in place	oil in place or oil in the ground is the quantity of oil or petroleum that is estimated to exist originally in naturally occurring accumulations before any extraction or production
P10 (high estimate)	a 10% probability that a stated volume will be equalled or exceeded
P50 (best estimate)	a 50% probability that a stated volume will be equalled or exceeded
P90 (low estimate)	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
primary recovery	The first stage of hydrocarbon production, in which natural reservoir energy, such as gas drive, water drive or gravity drainage, displaces hydrocarbons from the reservoir, into the wellbore and up to surface. Initially, the reservoir pressure is considerably higher than the bottomhole pressure inside the wellbore. This high natural differential pressure drives hydrocarbons toward the well and up to surface. However, as the reservoir pressure declines because of production, so does the differential pressure. To reduce the bottomhole pressure or increase the differential pressure to increase hydrocarbon production, it is necessary to implement an artificial lift system, such as a rod pump, an electrical submersible pump or a gas-lift installation. Production using artificial lift is considered primary recovery. Primary recovery is also called primary production
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 grains
secondary recovery	a second stage of hydrocarbon production during which a fluid such as water or gas is injected or re-injected into the reservoir through injection wells located in rock that has fluid communication with production wells. The purpose of secondary recovery is to maintain reservoir pressure and to displace hydrocarbons toward the wellbore. The most common secondary recovery techniques are gas injection and water flooding. Normally, gas is injected into the gas cap and water is injected into the production zone to sweep oil from the reservoir
water re-injection or water flood	a common form of secondary oil recovery in which water is injected or re-injected into the reservoir formation to maintain reservoir pressure and to displace oil towards producing wells

 

About Xodus

 

Xodus Group Ltd. are an oil and gas focussed energy consultancy with over 500 employees providing integrated subsurface and surface solutions to a global client base. Further information can be found on Xodus' website: www.xodusgroup.com

UKOG Licence Interests

 

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	appraisal/development well planned; licence extended to 2018
Broadford Bridge 3	PEDL234	100%	Kimmeridge Oil & Gas Limited 4	Kimmeridge Oil & Gas Limited 4	300.0	BB-1 well permitted, drilling planned in 2017
Brockham	PL235	1.66%	Angus Energy 6	Angus Energy 6	8.9	Well intervention programme ongoing
Holmwood 3	PEDL143	30%	UKOG	Europa Oil & Gas (Holdings) plc	91.8	Holmwood-1 exploration well planned in 2017
Horndean 1	PL211	10%	UKOG (GB) Limited	IGas Energy Plc	27.3	Field in stable production
Horse Hill 5	PEDL137	31.2%	Horse Hill Developments Ltd 7	Horse Hill Developments Ltd 7	99.3	Submitted planning application for long term production tests and drilling of two wells
Horse Hill 5	PEDL246	31.2%	Horse Hill Developments Ltd 7	Horse Hill Developments Ltd 7	43.6	As above
Isle of Wight (Offshore) 3	P1916	100%	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	PL241	1.28%	Angus Energy 6	Angus Energy 6	5.3	Drilling of infill well being considered
Markwells Wood 2	PEDL126	100%	UKOG (GB) Limited	UKOG (GB) Limited	11.2	Submitted planning application for appraisal and field development

 

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

5. Oil discovery with recently completed flow testing.

6. UKOG has a 2.56% interest in Angus Energy, which has a 50% interest in Lidsey and a 65% interest in Brockham; Angus hold an option to increase their Lidsey interest by a further 10% to 60%.

7. UKOG has a direct 48% interest in HHDL, which has a 65% interest in PEDL137 and PEDL246.