REG - UK Oil & Gas PLC - Horse Hill Farmout

UK Oil & GasAnnouncement

28/03/2023 07:45

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RNS Number : 4423U  UK Oil & Gas PLC  28 March 2023

UK Oil & Gas Plc

("UKOG" or the "Company")

 

 Horse Hill Farmout

UK Oil & Gas PLC (London AIM: UKOG) is delighted to announce that its
subsidiaries UKOG (137/246) Ltd (UKOG 100% interest) and Horse Hill
Developments Ltd ("HHDL", UKOG 77.9% interest) have executed a conditional
binding term sheet ("Agreement") with LSE main board listed Pennpetro Energy
plc ("PPP"), whereby PPP will farm-in to the Horse Hill Oil Field ("Horse
Hill") on an incremental production basis via funding the acquisition of 3D
seismic and the drilling of the next infill production well.  UKOG holds an
85.635% net interest in Horse Hill and the surrounding 142.9 km² PEDL137 and
PEDL246 licences ("Licences") located about 2 km north of Gatwick airport.

Farmout Highlights:

·    PPP to fund 100% of a new crestal infill production well, designated
Horse Hill-3 ("HH-3"), to be spudded after the completion of a PPP 100% funded
~12 square km high-definition 3D seismic survey (the "Farmout Programme"),
subject to an aggregate cap of £4.6 million.

 

·    Upon Farmout Programme completion, PPP will earn a 49% share of any
oil production from HH-3. PPP will also earn an aggregate 49% non-operated
Licences interest, comprised of an initial 7% on 3D seismic completion and a
further 42% interest upon HH-3 completion.

 

·    UKOG and HHDL will retain 100% ownership and rights to all oil
production and revenues from Horse Hill-1 ("HH-1"). UKOG will remain as the
Horse Hill and Licences operator.

 

·    The assignment of the aggregate 49% Licences interest to PPP is
subject to  PPP providing the necessary funds to drill HH-3 and complete the
Farmout Programme within six-months from the completion of the 3D seismic
which is at its discretion.

 

·    Subject to farmout completion, UKOG's interest in HH-1 production
will remain at 85.635% and its net interest in any HH-3 production and the
Licences will be 43.67%.

 

·    The farmout to PPP is subject to the completion of a formal Farmout
Agreement between the Parties, formal consent by each Parties' respective
boards, the full consent of all HHDL's shareholders and regulatory consent
from the North Sea Transition Authority for any Licences interest assignment.

 

·    Post  Farmout Completion, each Licences participant will bear and
pay cash calls pro rata to their respective interest in the Licences.

 

·    Planning and environmental consents remain in place for a further 4
production wells at Horse Hill.

 

·    3D seismic acquisition is currently targeted for H2 2023.

 

 

Stephen Sanderson UKOG's Chief Executive commented:

 

"This mutually advantageous transaction will inject new activity into Horse
Hill, aiming squarely to deliver increased production and revenues from the
oil field. The farmout enables UKOG to move this asset forwards without the
need to raise capital, enabling our resources to be firmly focussed upon the
appraisal and development of the Loxley gas discovery, our most material
petroleum asset. We look forward to a close working relationship with
Pennpetro and a mutually successful future at Horse Hill."

 

About Horse Hill

 

Following its discovery in 2014, Horse Hill was successfully production tested
in the Upper Portland sandstone and underlying Kimmeridge section from 2016
through to the start of long-term continuous Portland production in 2020. As
of mid-March 2023, continuing oil production from HH-1 totals an aggregate of
over 185,000 barrels of 35˚- 41˚ API sweet crude. Full planning and
environmental consents are in place for four additional infill production
wells.

 

In addition to the 132,000 barrels of 35-36˚ API Portland continuous
production, approximately 53,000 barrels of 41˚ API sweet crude were produced
from multiple zones within the underlying naturally fractured Kimmeridge
section during production testing, before being shut-in to permit longer term
Portland production. The Kimmeridge therefore remains a potentially viable
secondary conventional production target at Horse Hill.

 

A 2018 Xodus Competent Persons Report estimated a gross mid-case Portland oil
in place of 30 million barrels, with a corresponding mid-case 2C recoverable
Contingent Resource of 1.494 million barrels. The estimated mid case 5%
recovery factor being stated to be in accord with other analogous fields in
the Weald Basin. It should be noted, therefore, that the total HH-1 Portland
production to date potentially leaves approximately 1.362 million barrels of
the estimated mid-case 2C Portland recoverable resource available to infill
drilling and remaining HH-1 production.

 

It should be noted that, at present, the potential additional recoverable
volumes stated in this announcement are defined as Contingent Resources (as
more fully described in the glossary) and should not be construed as Reserves.
Further development of the asset via a successful Farmout Programme would be
required to seek to move the classification to Reserves.

 

As per the Company's RNS of 27(th) February 2023, the field's forthcoming
water injection programme seeks to improve net earnings from HH-1 and the
wider field by approximately £250,000 per annum by eliminating the
substantive costs of tankering and disposal of produced saline formation water
at distant third-party sites. The planned injection will also help maintain
reservoir pressure which can help improve ultimate oil recovery from HH-1 and
a future HH-3 well. The removal of tankering will also reduce the field's
overall carbon footprint.

 

For the year ended 30(th) September 2022, production operations from Horse
Hill (HH-1) returned a gross profit of £0.243 million and the Licences an
overall loss of £0.15 million.

 

About Pennpetro

 

Pennpetro Energy plc (LSE:PPP) is an oil and gas company focusing primarily on
production and development in Texas, USA. Its wholly owned subsidiary, Nobel
Petroleum USA Inc. has a Participation, Development and Option Agreement and
Joint Operating Agreement with Texas based Millennium PetroCapital Corporation
over a 250,000 acre Area of Mutual Interest in Gonzales County, Texas, aimed
at exploiting the prolific proven Austin Chalk oil and gas play.

 

Qualified Person's Statement

 

Matt Cartwright, UKOG's Commercial Director, who has 40 years of relevant
experience in the global 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 / Allen D Howard                         Tel: 01483 941493

        WH Ireland Ltd (Nominated Adviser and Broker)
        James Joyce / Andrew de Andrade                            Tel: 020 7220 1666

        Communications
        Brian Alexander                                            Tel: 01483 941493

 

Glossary of Terms

 ˚API                                a measure of the density of the oil according to the American Petroleum
                                     Institute
 discovery                           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 (oil in Horse Hill
                                     and gas in Loxley)
 2C                                  the mid-case or average estimate of Contingent Resources usually corresponding
                                     to the P50 case, where there is an associated 50% probability that the
                                     quantities recovered could equal or exceed the estimate.
 Competent Person's Report or CPR    a Petroleum Resources report prepared by an independent Competent Person(s),
                                     providing an estimated range of remaining recoverable resources and their
                                     potential monetary valuation in accordance with the relevant reporting
                                     standard, in this case PRMS and AIM. The Xodus report stated in this RNS was
                                     completed as an AIM compliant CPR as part of UKOG's readmission process.
 Contingent                          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
 Resources                           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
 Field                               A discovered and producing petroleum accumulation located within an area
                                     consisting of a single petroleum reservoir or multiple reservoirs all grouped
                                     on, or related to, the same individual geological structural feature and/or
                                     stratigraphic condition.
 mid-case                            The average or best estimate which in the case of reserves and resources
                                     usually correspond to the P50 case where there is estimated to be a 50%
                                     probability that the quantities recovered could equal or exceed this estimate.
 Oil in Place or OIP                 the quantity of oil that is estimated to exist in naturally occurring
                                     accumulations within the ground before any extraction to surface via
                                     production
 PRMS                                Petroleum Resources Management System created by the Society of Petroleum
                                     Engineers. A global standard of petroleum reserve and resource classification
                                     together with guidelines and accepted methodologies for the definition and
                                     estimation of petroleum resources and their monetary valuation
 recovery factor                     The recovery factor represents the percentage of the oil in place that can be
                                     recovered to surface via production wells
 recoverable volumes  or resources   those quantities of petroleum (oil in this case) estimated, as of a given
                                     date, to be potentially recoverable from known accumulations. The recovery
                                     factor represents the percentage of the GIIP that can be recovered to surface
                                     via production
 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 satisfy four criteria:
                                     discovered, recoverable, commercial and remaining (as of the evaluation's
                                     effective 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.

 

 

The information contained within this announcement is deemed to constitute
inside information as stipulated under the retained EU law version of the
Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK
law by virtue of the European Union (Withdrawal) Act 2018. The information is
disclosed in accordance with the Company's obligations under Article 17 of the
UK MAR. Upon the publication of this announcement, this inside information is
now considered to be in the public domain.

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