REG - IOG PLC - Operational update

IogAnnouncement

19/10/2022 07:00

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RNS Number : 3337D  IOG PLC  19 October 2022

19 October 2022

 

IOG plc

 

Operational update

 

IOG plc ("IOG", or "the Company"), (AIM: IOG.L), the Net Zero UK gas and
infrastructure operator focused on high return projects, provides a Phase 1
operational update.

 

Headlines:

 

-     Drilling fluid losses at Southwark A1 well have continued in the
Bunter Shale Formation

-     A1 has been suspended to enable A2 well stimulation operations to
proceed as planned for First Gas in Q4, before resuming A1

-     Saturn Banks to be shut-in for a total of four weeks, including
depressurising the line ahead of the Bacton terminal shutdown, to enable the
final subsea connection to Southwark

-     Average 2H 2022 production to date of 28.6 mmscf/d, constrained by
aqueous liquids production at Blythe, at an average realised price of 258
p/therm

-     Blythe H1 well ultimate recoverable gas volumes estimated at 29 BCF
and Elgood at 7.5 BCF - options to optimise recovery are being evaluated

-     2H 2022 production guidance revised from 30-50 mmscf/d to 22-28
mmscf/d

 

Southwark Drilling

 

After extensive drilling fluid losses in the 12-1/4" section in the Bunter
Sandstone Formation, the Southwark A1 well progressed into the Bunter Shale
Formation, where further fluid losses have been encountered on drilling out of
the 9-5/8" casing shoe. This has no bearing on the Southwark reservoir itself
which lies well below this section.

 

The losses have not yet been sufficiently cured to drill ahead safely and the
resulting delays have reduced the time available before the scheduled arrival
of the hydraulic stimulation vessel. After careful consideration of the
options with the relevant contractors, IOG has therefore decided to securely
suspend the A1 well in order to proceed with hydraulic stimulation and
commissioning of A2 to deliver Southwark first gas in Q4 as planned. Based on
the current schedule and subject to further operational risks, this would be
achievable by mid-December.

 

In parallel, several options to mitigate fluid losses and drill ahead at A1
are being worked through in preparation for completing and producing the well
after bringing on A2.

 

Southwark Subsea, Hook-up and Commissioning

 

The Seven Atlantic Diving Support Vessel has been operating offshore to
connect the outer section of the Saturn Banks Pipeline System (SBPS) from the
24" manifold to the Southwark platform, to prepare for the introduction of gas
from Southwark. Due to a defective 6" offshore valve the SBPS will need to be
depressurised in order to connect the outer section safely to the manifold.
Saturn Banks production will therefore be suspended in late October for
approximately four weeks, including the November Bacton terminal annual
shutdown.

 

Blythe Field

 

Blythe production has been constrained by liquids handling capacity at the
Bacton terminal and the need for offsite storage, processing and disposal of
saline aqueous liquids being produced from the H1 well. H1 was drilled into
the field's southeast high, which was considered the optimal route to drain
the field. Latest analysis of production and reservoir pressure data from the
first six months of H1 production indicates that the well is located in a
reservoir compartment which is materially baffled from the central and
northwest areas of the field and will ultimately recover an estimated 29
billion cubic feet (BCF), compared to the management estimated reserves of
1P/2P/3P 25.4/42.5/55.8 BCF. The Company is evaluating options to further
optimise recovery.

 

Elgood Field

 

Production and reservoir pressure data from the six months since First Gas at
Elgood has also been technically assessed. The Elgood production rate recently
fell below 10 mmscf/d and is expected to decline further by year end. The
decline in flow rate has been faster than anticipated given the pre-production
estimated reserves range of 1P/2P/3P 9.7/14.1/18.3 BCF. The latest analysis
indicates that gas is not flowing across the NW-SE oriented intra-field fault
to the wellbore as expected. As a result, the most likely ultimate recovery
from the field is now assessed to be 7.5 BCF, of which approximately 4 BCF has
been produced to date.

 

Combined flow rates from Blythe and Elgood over 2H 2022 to date have averaged
28.6 mmscf/d, at a volume weighted average price of 258 p/therm. Based on
this, and noting the upcoming four-week outage, the expected average gross
production rate over 2H 2022 has therefore been revised from 30-50 mmscf/d to
22-28 mmscf/d.

 

Andrew Hockey, CEO of IOG, commented:

 

"Drilling the Southwark A1 well has continued to be very challenging with
further fluid losses at the base of the Bunter Shale. To preserve the
opportunity to deliver first gas in this quarter, we have decided to suspend
operations on A1 in order to ensure that A2 stimulation work proceeds in the
scheduled window. We plan to resume, complete and produce A1 after bringing A2
onstream.

 

Final connection of the Saturn Banks Pipeline System to Southwark has been
affected by a defective 6" valve at the offshore 24" manifold. To enable safe
connection, the line will be depressurised ahead of the Bacton terminal
November shutdown, requiring an expected overall outage of four weeks.

 

Over 2H 2022 to date, Saturn Banks production rates have been constrained to
28.6 mmscf/d by limits on aqueous liquids storage, processing and disposal
routes, which we continue to work up several options to resolve. Latest
analysis indicates that the Blythe H1 well will ultimately recover 29 BCF,
given limited connectivity to other parts of the field and that Elgood is a
smaller structure than previously estimated, with projected ultimate recovery
of 7.5 BCF. In this context, we have reforecast 2H 2022 production guidance to
22-28 mmscf/d."

 

Competent Person's Statement

In accordance with the AIM Note for Mining and Oil and Gas Companies, IOG
discloses that Andrew Hockey, IOG's CEO, is the qualified person that has
reviewed the technical information contained in this document.  Andrew Hockey
has an MSc in Petroleum Geology and has been a member of the Petroleum
Exploration Society of Great Britain since 1983.  He has over 40 years'
operating experience in the upstream oil and gas industry.  Andrew Hockey
consents to the inclusion of the information in the form and context in which
it appears.

 

This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the company's obligations under Article 17 of
MAR.

 

Enquiries:

 

 IOG plc                                            +44 (0) 20 7036 1400

 Andrew Hockey (CEO)

 Rupert Newall (CFO)

 James Chance (Head of Capital Markets & ESG)

 finnCap Ltd                                        +44 (0) 20 7220 0500

 Christopher Raggett / Simon Hicks

 Peel Hunt LLP                                      +44 (0) 20 7418 8900

 Richard Crichton / David McKeown

 Vigo Consulting                                    +44 (0) 20 7390 0230

 Patrick d'Ancona / Finlay Thomson

About IOG:

 

IOG is a Net Zero UK gas and infrastructure operator focused on high-return
projects. The Company's operations are currently concentrated around its
offshore and onshore Saturn Banks infrastructure in the UK Southern North Sea.
Phase 1 of its Saturn Banks Project, which started production in March 2022,
entails the commercialisation of the Blythe, Elgood and Southwark gas fields
through this infrastructure. Phase 2 of the Saturn Banks Project entails the
Nailsworth, Goddard and Elland gas discoveries, which are subject to future
investment decisions and expected to be commercialised through the same export
infrastructure. The Company also holds further licences with additional
resources including the Abbeydale, Panther and Grafton gas discoveries, the
Kelham North, Kelham Central, Thornbridge and Thornbridge Deep prospects, and
part of the Orrell gas discovery. Currently, all IOG's licences are held 50:50
with its joint venture partner CalEnergy Resources (UK) Limited and operated
by IOG. In addition, the Company continually evaluates further opportunities
for accretive portfolio additions to help generate additional shareholder
returns. Further details are available at www.iog.co.uk (http://www.iog.co.uk)
.

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